Monetary Reform

[Parker]...loans that are paid back are cancelled out of existence, with the banks being after the real assets, or real estate, they can seize when the shortage of purchasing power causes collateral to fall into their hands...Also, you have to remember that even if the collateral a bank seizes has fallen in value to less than what that loan was, the loan itself was created from nothing. The cost to the bank was merely its administration charges, and holding on to a small capital reserve.
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The above states that 1) the purpose of loans is to seize assets; and 2) loans are created from nothing. Both assertions are factually incorrect.

1) This cannot be true because as a matter of law banks do not get to keep the property. The property is auctioned off to the highest bidder. Of the money collected at auction banks get to keep only the amount equal to the unpaid balance of the loan.

2) Banks do not create loans from nothing. The lending process is the exchange of debt instruments for debt instruments. Borrowers exchange their promises to pay for bank deposits, which are liabilities of the banks. What is happening is that the banks monetize the credit of the borrowers, making it more generally acceptable to the community as a whole, thereby facilitating trade and commerce. As production, distribution and consumption grow, the money supply grows along with it.

[Shakespeare] The creation happens because the individual banks receiving deposits can on-lend and that lending can end up as deposits elsewhere which can in turn be on-lent. It would be nice if there were to be no further obfuscation of this matter.
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Isn't this saying that loans are made from deposits? This too is factually incorrect and contradicts earlier statements. The individual banker doesn't make loans from his depositors' accounts, but from his own deposits at the clearing bank or from his own vault. His depositors' accounts are liabilities to him. His own account with the clearing bank is an asset. In principle he can make loans up to the net of his assets over his liabilities. This is possible because the banker has credit lines with other financial institutions. If the ratio of his assets is decreasing to his liabilities, he is losing money. Banking is a profit and loss operation. Defaulting loans mean falling assets and losses.

>From: "Dan Parker"

>Reply-To: monetaryreform@cog.kent.edu

>To:

>Subject: Re: MONETARY: Re-turn of the crank

>Date: Sun, 3 Nov 2002 15:06:32 -0700

>www.socialcredit.com

> ----- Original Message -----

> From: Rodney Shakespeare

> To: monetaryreform@cog.kent.edu

> Sent: Sunday, November 03, 2002 2:05 PM

> Subject: Re: MONETARY: Re-turn of the crank

> Dear Monetary Reform members,

> Bill Ryan in responding to Dan Parker is continuing to confuse two issues. The first is that the banks create money out of nothing. That is agreed. And I have previously pointed out the massive public ignorance about the matter.

> The second is whether the bank's ability to make loans is unlimited -- and I do not remember Dan saying that it was unlimited.

> Rodney, I have said that the Bank's ability to create money was *not*

> unlimited, at least twice now, maybe three times in this group.

> Once was to correct something that Keith sent that a friend had

> written that had said it was unlimited, on this very thread about

> cranks.

> I don't see Mr. Ryan's posts in my inbox, and have to look for them

> elsewhere should I choose to read the odd one. I have stopped doing

> even this now, as I can see no progression that can come out of

> communications between Mr. Ryan and myself.

> The lesson I took from here is how to design an Internet communications

> system for monetary reformers so that progress can occur between

> participants.

> I have been on newsgroups where those who favoured the status

> quo reiterated a lot of incorrect information about the banking system.

> In my opinion, Mr Ryan has outdone them all, not only about money,

> but about social credit. I agree with you that the small capital reserve

> requirement banks are required to hold have very little effect on the

> overall dynamic of the unjust monopoly of credit.

> rgds

> Dan Parker

> Furthermore, suppose there is miniscule limitation on banks making loans (as there undoubtedly is) how can that detract from the main issue -- that the banks create the money out of nothing? It cannot.

> And if there is substantial limitation (e.g. an inability to fund credit-worthy borrowers) that, too, does not detract from the fact that the banks create the money out of nothing.

> The creation happens because the individual banks receiving deposits can on-lend and that lending can end up as deposits elsewhere which can in turn be on-lent. It would be nice if there were to be no further obfuscation of this matter.

> Rodney Shakespeare.