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    (Original post by cole-slaw)
    I'll repeat the question:

    Do you think the Bank of England has to borrow money from private banks?
    Answered above, in my edit.
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    (Original post by Polymath0)
    It's clear from the text that the central bank does not borrow from the private banks. Why would you think that? The central bank supplies the reserves on demand.

    So why did you say:


    The government, in fact, does not have all the money it needs because it has no control over the money supply. It must be borrowed at interest from a pool of money originally newly created by private banks, again in the form of debt.



    It appears that you lack a very basic understanding of the functioning of the banking sector. The central bank actually has an infinite amount of money - it can print off what it likes, when it likes.
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    (Original post by cole-slaw)
    The central bank actually has an infinite amount of money - it can print off what it likes, when it likes.
    Can you support that from the quarterly bulletin released by the Bank of England itself? How is that possible when the paper itself admits that private banks create money?
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    (Original post by Polymath0)
    Can you support that from the quarterly bulletin released by the Bank of England itself? How is that possible when the paper itself admits that private banks create money?
    Because its not talking about all money, just the money created (ie credit extended) by licenced private banks.

    You've contradicted yourself. First you said that all money is created by private banks and the Bank of England had to borrow money off them, then you said that that idea was ridiculous. Have you made up your mind yet which one you think is true?

    You also said: "it has no control over the money supply". This is nonsense. The government could in theory control the money supply because it has the power to insist on strict reserve ratios, it just chooses not to, because its simpler and easier to control inflation by means of manipulating the base rates.



    You haven't answered my other question either:

    Lets say you're the government in this country, you've just built a printing press, and you want to start buying stuff with this money you have produced. How are you going to get people to accept it?
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    (Original post by MKultra101)
    That is myth. The Bank of England is owned by a small number of shareholders who are unknown because the shares were issued as "bearer shares".

    The company structure is called Bank of England Nominees Ltd.
    You are confused. Bank of England Nominees is owned by the Bank of England (which was nationalised in 1946), not the other way around. The two shareholders of Band of England Nominees are the Bank of England and the Secretary of the Bank of England in his official capacity.
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    I just think they should print more money, put it in an aeroplane and distribute it all over england
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    A lot of people (particularly conspiracy theorists) completely misundestand money creation. They think that when commercial banks create money (by generating a loan on their balance sheet, which in banking accounting is an asset), they are creating money in the sense that the central bank can create money. In fact they are distinct in how they are created (and even in their actual degree of "realness"

    It is money in the sense that other banks, and inviduals, will accept a bank deposit as money. When you get a mortgage for a house and you want to pay for it, do you pay in cash? Of course not. You pay with a cheque, which means the money is just being transferred from one bank to another and as all banks recognise each others credit creation as money, it is money. When the mortgage is created, the bank presses creating £x pounds that is now in your account, and which other banks accept as being money (in that if they do a transfer, these banks will then credit your account and the sending bank will debit). But when a loan is created, they don't need to call the Bank of England and have them send over some £50 bills. The money only exists in the sense that it is accepted as money by other commercial banks and therefore by consumers.

    In terms of "real" money (known as M0, which encompasses real notes and coinage, and commercial bank deposits in the Bank of England) I think there is only about £47 billion. M4 is commercial bank deposits. When you add up all the different forms of money (M0 + M1 + M2 + M3 + M4) you have the money supply in the aggregate.

    We don't need to "re-nationalise" the ability to print money, the Bank of England can do it at the flip of a switch. Demanding that we take away the ability for private banks to "create" money is nonsensical in that their ability to do so is entirely based on the consumers commercial acceptance as such. And the consumer is completely free to do the same if they want (see Bitcoin). Money is simply what is accepted as money. If we decided to accept sea shells as money, then sea shells would be money.
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    (Original post by ikhan94)
    I just think they should print more money, put it in an aeroplane and distribute it all over england
    That's actually a real thing in monetary policy, it's called "helicopter money".

    In fact, they did it in Australia a few years back when the world was going into recession to stimulate the economy (well, they didn't actually send it by helicopter.. but everyone received a $900 cheque)
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    (Original post by SignFromDog)
    A lot of people (particularly conspiracy theorists) completely misundestand money creation. They think that when commercial banks create money (by generating a loan on their balance sheet, which in banking accounting is an asset), they are creating money in the sense that the central bank can create money. In fact they are distinct in how they are created (and even in their actual degree of "realness"

    It is money in the sense that other banks, and inviduals, will accept a bank deposit as money. When you get a mortgage for a house and you want to pay for it, do you pay in cash? Of course not. You pay with a cheque, which means the money is just being transferred from one bank to another and as all banks recognise each others credit creation as money, it is money. When the mortgage is created, the bank presses creating £x pounds that is now in your account, and which other banks accept as being money (in that if they do a transfer, these banks will then credit your account and the sending bank will debit). But when a loan is created, they don't need to call the Bank of England and have them send over some £50 bills. The money only exists in the sense that it is accepted as money by other commercial banks and therefore by consumers.

    In terms of "real" money (known as M0, which encompasses real notes and coinage, and commercial bank deposits in the Bank of England) I think there is only about £47 billion. M4 is commercial bank deposits. When you add up all the different forms of money (M0 + M1 + M2 + M3 + M4) you have the money supply in the aggregate.

    We don't need to "re-nationalise" the ability to print money, the Bank of England can do it at the flip of a switch. Demanding that we take away the ability for private banks to "create" money is nonsensical in that their ability to do so is entirely based on the consumers commercial acceptance as such. And the consumer is completely free to do the same if they want (see Bitcoin). Money is simply what is accepted as money. If we decided to accept sea shells as money, then sea shells would be money.
    I think M4 actually includes M3, M3 includes M2 etc


    But other than that, you have it spot on. Shame OP is so full of his own self-importance he can't see what an idiot he looks to anyone with any knowledge of economics.
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    (Original post by SignFromDog)
    That's actually a real thing in monetary policy, it's called "helicopter money".

    In fact, they did it in Australia a few years back when the world was going into recession to stimulate the economy (well, they didn't actually send it by helicopter.. but everyone received a $900 cheque)
    Lool
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    (Original post by cole-slaw)
    I think M4 actually includes M3, M3 includes M2 etc
    Of course you are absolutely right. My bad. Each is like "M3 = M2 + saving certificates" etc rather than a discrete "M"

    But other than that, you have it spot on. Shame OP is so full of his own self-importance he can't see what an idiot he looks to anyone with any knowledge of economics.
    Indeed. Unfortunately this kind conspiro-monetarism has become a big thing in recent years and because they have lots of technical-sounding details to spout, it sounds quite credible to ordinary people.
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    (Original post by cole-slaw)
    Because its not talking about all money, just the money created (ie credit extended) by licenced private banks.
    It is referring to the money supply in its entirety. How else is money issued except through lending by commercial banks?

    You've contradicted yourself. First you said that all money is created by private banks and the Bank of England had to borrow money off them, then you said that that idea was ridiculous. Have you made up your mind yet which one you think is true?
    Can you quote where I stated that the Bank of England must borrow from the commercial banks? This is a case of miscommunication. On behalf of the government, the BoE sells debentures in the private sector to acquire money for government expenditure. The money borrowed is already existing money that was originally created when a private commercial bank made a loan. Bank lending create purchasing power.

    You also said: "it has no control over the money supply". This is nonsense. The government could in theory control the money supply because it has the power to insist on strict reserve ratios, it just chooses not to, because its simpler and easier to control inflation by means of manipulating the base rates.
    Central Bank Reserves, i.e. "base rates," function in lockstep with money creation by the banks. The central bank provides the reserves required for the day after the fact, having a reactive role to the proactive role of money creation by the banks. In the current system, the government has no control over money creation because neither can it decide on its quantity nor its allocation. It is the private banks that have been given the unwarranted privilege of primary creation and allocation.

    I dispute the notion that the base interest rate has a significant sway on controlling inflation, since it applies to a mere fraction of the entire money supply and is simply used by banks as a means of payment settlement which can be acquired in the interbank market, besides the central bank, to meet its liquidity requirement. That commercial banks have induced asset-price inflation in the property market is an illustration of the fact that they can lend money at will, and for the pure sake of profit.

    You haven't answered my other question either:Lets say you're the government in this country, you've just built a printing press, and you want to start buying stuff with this money you have produced. How are you going to get people to accept it?
    That's actually a new question...

    It would be written into law and, thus, accepted as legal tender just as it is now.
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    SignFromDog,

    I promise to get back to you in due course. Alas, I currently have time restraints.
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    Can you quote where I stated that the Bank of England must borrow from the commercial banks?
    (Original post by Polymath0)
    The government, in fact, does not have all the money it needs because it has no control over the money supply. It must be borrowed at interest from a pool of money originally newly created by private banks.
    Get out of that one. Oh wait, you can't.


    The central bank provides the reserves required for the day after the fact
    another fundamentally idiotic misunderstanding. The central bank does not provide the reserves, the private banks do. You really have no idea about the reserves system, do you?

    You REALLY don't know what you're talking about. Every sentence is full of incredibly basic errors.

    It would be written into law and, thus, accepted as legal tender just as it is now.
    Sorry, but that's yet more complete nonsense. The government cannot just declare a value and magically that is how much the money is worth. Its value comes from the fact that it is debt. Without being backed by debt, money is just a piece of colourful paper.



    I seriously recommend you sign up to some kind of introductory monetary economics course, because at the moment you're just repeatedly embarrassing yourself.
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    (Original post by Polymath0)


    Central Bank Reserves, i.e. "base rates,"
    Did I read this right? Did you just refer to the central bank reserves as the "base rates"?

    That's the economic equivalent of a medical student going "The head (also known as the leg)".
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    Isn't that quantative easing
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    (Original post by Argentinababy)
    Isn't that quantative easing
    Quantitative easing is when the central bank creates its own money and buys back government bonds off its bondholders.

    Basically its a way of increasing the liquidity of the nation by exchanging illiquid debt (government bonds) for pure liquid debt (money).
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    (Original post by cole-slaw)
    Did you just refer to the central bank reserves as the "base rates"?
    I stand corrected. I had meant to say "base money."
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    (Original post by cole-slaw)
    Get out of that one. Oh wait, you can't.
    There is nothing to get out of to begin within. You either misread or somehow read something that isn't included in the text. I mentioned in the text specifically the fact that the government borrows from the private banks. The BoE carries out this function on behalf of the government. Perhaps it's a petty distinction to make, but I'd have understood better if you had instead asked "do you think the government has to borrow money from the private banks?" Then I would have understood precisely what it is you were referring to, since the BoE performs a variety of monetary-specific tasks.

    Of course, the government does not always borrow money directly from the private banks. I explained in my previous post that the government borrows existing money that was created when a loan was made. However, I provocatively say that "the government borrows money from private banks" as a mental shortcut to put across the ultimate reality of it. If I simply stated "the government borrows bank money from the private sector" it would be conventionally accurate, but it wouldn't enable people to understand the underlying controversy involved.

    another fundamentally idiotic misunderstanding. The central bank does not provide the reserves, the private banks do. You really have no idea about the reserves system, do you?
    The following quote from a research paper on money creation by the Bank of England exposes your misunderstanding.

    "The amount of bank deposits in turn influences how much central bank money banks want to hold in reserve (to meet withdrawals by the public, make payments to other banks, or meet regulatory liquidity requirements), which is then, in normal times, supplied on demand by the Bank of England. The rest of this article discusses these practices in more detail."

    http://www.bankofengland.co.uk/publi...eycreation.pdf

    The private banks create broad money not base money. The base money (central bank reserves) constitutes only a fraction of the broad money created by banks, and includes the tangible legal tender, i.e. cash and coins, for withdrawal purposes.

    You REALLY don't know what you're talking about. Every sentence is full of incredibly basic errors.
    This is unsubstantiated hyperbole. You strike me as an oddly emotional person.

    Sorry, but that's yet more complete nonsense. The government cannot just declare a value and magically that is how much the money is worth. Its value comes from the fact that it is debt. Without being backed by debt, money is just a piece of colourful paper.
    The value of government-issued money would not simply be "declared." Its value would naturally be determined by the productivity, reform and development it engenders within society. Government created money would enable private banks to simply act as intermediaries. Private banks, then, would create debt not money. The debt would not create purchasing power and thereby create a distributional bias toward the property and financial markets as opposed to earned income.

    I seriously recommend you sign up to some kind of introductory monetary economics course, because at the moment you're just repeatedly embarrassing yourself.
    An arrogant and rude presumption. Why am I not surprised?
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    (Original post by SignFromDog)
    A lot of people (particularly conspiracy theorists) completely misundestand money creation. They think that when commercial banks create money (by generating a loan on their balance sheet, which in banking accounting is an asset), they are creating money in the sense that the central bank can create money. In fact they are distinct in how they are created (and even in their actual degree of "realness"
    In the following quote, you logically conclude that electronic credit creation ultimately constitutes money as it is recognised as a means of payment throughout the economy.

    You pay with a cheque, which means the [electronic] money is just being transferred from one bank to another and as all banks recognise each others [electronic] credit creation as money, it is money.
    So where is the distinction between electronic credit and physical legal tender?

    We don't need to "re-nationalise" the ability to print money, the Bank of England can do it at the flip of a switch. Demanding that we take away the ability for private banks to "create" money is nonsensical in that their ability to do so is entirely based on the consumers commercial acceptance as such. And the consumer is completely free to do the same if they want (see Bitcoin).
    I can't see an argument here. The Bank of England can only fractionally create M0, the notes and coins, reactively to the proactive creation of electronic money by banks. The electronic money, therefore, constitutes the entire money supply since it is the only form of money which is created and loaned.

    The second part of your argument is nearly incoherent. Customers of commercial banks accept the loan, per se, not necessarily the process by which the loan is issued. In fact, a majority of bank customers have no knowledge that private commercial banks have the power to create money at will.
    Bitcoin is in use on a limited scale and has not replaced the national currency. It's a completely false comparison.

    Money is simply what is accepted as money. If we decided to accept sea shells as money, then sea shells would be money.
    I don't disagree. I wholeheartedly agree. Yet I still fail to grasp how this ties in with anything you've said.
 
 
 
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