Cyprus-Forum.com

[Robin Hood]

Paphitis:

There is lots of stuff.

You can start by looking at The Reserve Bank of Australia. They go into everything in VERY great detail, as well as how Banks are Capitalized and how they create loans, the Financial Services Act and exactly what they do as a Central Bank. Hours and hours of reading if you are willing to read it all.

I'm afraid you can't just make it up.

http://www.rba.gov.au/about-rba/

It says nothing about creating New Money, it says:

“ It (RBA) does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system, and issuing the nation's banknotes.”

Not a valid reference ..... it works like all central banks!

Check it all out here:

http://www.rba.gov.au/qa/

Again nothing about creation of New Money? But it does say that it is Government owned, therefore not independent!

http://www.rba.gov.au/banknotes/

"The Reserve Bank is responsible for all aspects of the production and issuance of Australian banknotes."

Again nothing about creation of New Money?

http://www.rba.gov.au/fin-services/

Again nothing about creation of New Money?

And you might want to check it this section in particular about FINANCIAL STABILITY. It has everything including the regulatory framework and how banks operate.

http://www.rba.gov.au/fin-stability/

But again, nothing about creation of New Money?

And also this link here about INFLATION and monetary policy.

http://www.rba.gov.au/monetary-policy/

Yet again, nothing about creation of New Money?

And yes, it is the CENTRAL BANK that has all the power, not the Banks.

No it isn't ..... they MONITOR ..... they do not control or regulate private banks!!

Like all other countries ...... Australian private commercial banks create the new money ..... not the ARB.

BTW: Are you aware that the Australian dollar has only very recently (this year) been accepted as a reseve currency? Now their troubles with foreign debt will start to impact!

So ........ no proof there then to support your line of reasoning?

[Robin Hood]

Erolz:

I still maintain the the key flaw in this system is that money creation is too important a function to left near exclusively in the hands of private banks. How much they decide to create or not create is a function of their 'optimism' about the future and it inevitably out of synch with the wider needs of society. They create too much , too freely when it would actually better for society to create less, and too little when it would be better for society for them to create more, more freely.

IMO: That is why the Banking Charter Act 1844 needs to be updated to remove the function of money creation from private banks completely. I have no problem with them getting the loans for zero interest from the CB and then adding interest within predefined (Central Bank) limits, as used to be the case in Cyprus before the Euro, but the controller of market interest rates should be the Central Bank, not just setting the overnight or base rates.

However! We are not alone ........

Switzerland to vote on banning banks from creating money.

If successful, the sovereign money bill would give the Swiss National Bank a monopoly on physical and electronic money creation, "while the decision concerning how new money is introduced into the economy would reside with the government," says Vollgeld.

The idea of limiting all money creation to central banks was first touted in the 1930s and supported by renowned US economist Irving Fischer as a way of preventing asset bubbles and curbing reckless lending. In modern market economies, central banks control the creation of banknotes and coins but not the creation of all money, which occurs when a commercial bank offers a line of credit. Central banks aim to influence the money supply with monetary policy and regulatory tools.

http://www.telegraph.co.uk/finance/economics/11999966/Switzerland-to-vote-on-banning-banks-from-creating-money.html

There it is again ..... Central Banks do NOT create New money! They have influence but no control over private banks.

[Pyrpolizer]

As I previously said to Paphitis the collateral is nothing more than insurance. The collateral only becomes significant when things go wrong! The ‘sleeping value’ does not appear on any books; it does not appear in circulation as New Money; it does not reduce the New money in circulation but, the creation of new money by granting credit does appear on the books.

The money created is not ‘existing money’ that has been transferred or converted it is NEW Money as in: NEW = Adjective, as in produced, introduced, or discovered recently or now for the first time; not existing before. It came into existence because of a loan, it is the provision of the loan that requires collateral ...... so until that point it did not exist ..... so therefore it has to be something NEW that came from ?????? ...... nowhere. What created it was granting the loan, it cannot be any other way because until the loan it did not exist, without the loan it would not exist and the collateral requirement is for the loan ..... not the creation of NEW money ..... that was the result of the loan.

Well I agree that it’s treated like an insurance, but you can’t deny the fact that the collateral is in fact money because it has the basic characteristics of money. It has a stored value. You could as well sell the asset to the Bank under the condition that as soon as you return the money they would return you the asset.

The simple truth is that person X cannot own both the stored value of the asset plus it’s value in cash via a loan. By setting it as collateral he actually loses the right to ownership of that stored value and that right is transfered to the Bank under the term that it will be returned when the loan is paid back. Notice that when the Banks get sold those rights get sold too.

So imo there is no new money created per se. It is a simple exchange of one stored value into another. However the Banks just use the trick of the multiplying effect of the loans to deposits circle to fund this exchange via some computer entries that are actually NEW money.While Imo there shouldn't be any new money anywhere, the exploitation of the circle effect, creates new money
That's why imo the funding should be from the Central Bank.
The loan itself actually pre-buys future wealth. The borrower through future work (usually) pays back the loan, regains his asset, plus some more assets that he made using the loan.
The system is great because in some manner it applies pressure to the borrower to increase his and in extension the nation’s wealth. I understand Paphitis in this respect.
But at the same time it has it’s pitfalls as it has already been discussed.

[Paphitis]

Paphitis:

Created out of thin air is not correct. Yes money is created, but it is created from existing wealth. That is, someone has to put a Security down for the money to be created in the first instance. This is what inevitably protects the Banks and the Depositors if a portion of the lending is backed by deposits, which it doesn't have to be. A Bank uses its deposits to support its liquidity to cover other deposits fractionally. If 100% of depositors ran against a particular Bank over a few days, then yes, the Bank will go Bankrupt. This was about to happen in Cyprus which is why they introduced Capital Controls to stop it from occurring.

Once again you are confusing the requirements to obtain a loan, with the requirements to create that same amount of New Money. To create New Money ( NEW = Adjective, as in produced, introduced, or discovered recently or now for the first time; not existing before), all I need is access to the banks computer ....... other than that it is unconditional!

Sorry but collateral is nothing more than insurance. The collateral only becomes significant when things go wrong! The ‘sleeping value’ does not appear on any books; it does not appear in circulation as New Money; it does not reduce the new money in circulation but the creation of new money by granting credit does appear on the books.

They (The Banks) actually have a Watch Dog in the form of a Central Bank, which btw has the power to create currency and to Capitalise the Banks and Government. These Central Banks are truly independent from Government, but are Publicly owned (by the tax payer).

The Central Bank of the UK. And most others are not independent from Government, the Governments own them. From the BoE website:

“The Bank (of England) is a public sector institution, wholly-owned by the government, but accountable to Parliament. The entire capital of the Bank is, in fact, held by the Treasury solicitor on behalf of HM Treasury. Each year, the Bank is required to submit its Report and Accounts to Parliament, via the Chancellor of the Exchequer.”

http://www.economicshelp.org/blog/626/economics/who-owns-the-bank-of-england/

The CB does not create money in the same context as a commercial bank does. It creates fractional reserve balances for interbank lending, it does not create new money for lending into the economy, only commercial banks do that (normally). The CB created money is an accounting exercise that operates only within Central Banks banking reserves system. So not quite the same thing .... at least that is how I understand this explanation:

http://positivemoney.org/how-money-works/advanced/how-central-banks-create-money/

That creation of money not have the same requirements as this does ....... as loans/debt by commercial banks

http://positivemoney.org/how-money-works/how-banks-create-money/

............ and big banks create Trillions worth of lending which btw will end up being IOUs for a Bank and hence a liability.

As I keep trying to explain to you deposits = liabilities; debt = assets.

You are wrong. ASK YOUR BANK MANAGER or use a bit of common sense! A loan is an asset to the bank and a liability to the borrower; a deposit is a liability for the bank. Fact! If a loan was a liability as well as the deposit the bank would have no assets only liabilities!

Loans ‘burden’ other banks only because deposits are a liability i.e. the bank has a liability to repay the depositor on demand. The deposits are never loaned to borrowers. Loans create deposit’s, the deposits are ‘borrowed’ by the bank and form part of their reserves. This is why they are a liability ........... they use your deposits as their reserves.

..........because the entire system relies on CONFIDENCE. When Banks go down, the public lose confidence and this can cause a Bank Run which is like the worse thing that can happen, and all Banks fear this. But as long as the system ticks along, everyone is happy, and CONFIDENCE exists and is measured by the amounts people are borrowing and spending.

No argument with that sentiment.

.......because their Balance sheet is not properly leveraged against Assets or lending. They will maintain this until they get back into equilibrium. And the Central Bank will let them do it because the last thing it wants is a Banking Collapse.

Explain that to me ....... ???

So it is also incorrect that Banks are going to start charging for deposits. That is actually a method they use to discourage deposits, and usually when a bank does this, it is an indication that all is not well with that Bank as it is over burdened with liabilities.

They charge negative interest in both Sweden and Switzerland and will do soon in most other countries. That will be the first step into making people spend instead of save.

The Central Bank is eventually forced to print and capitalize the Banks, and also lower the cost of money.

Explain that to me ........ ???

The money created supports property prices, share prices and just about everything else in the market place.

That is called asset inflation and is a bad thing .... not a good thing. Too many IOU’s chasing too few assets. Therefore more IOU’s per asset! None of it goes into the real economy!

Without it, our economy, hence employment will only be a fraction and business will not be able to function unless you just want to grow tomatoes and kolokasi and sell your toil by the roadside.

But what you describe does not support the economy ..... it inflates asset prices, that does not create wealth, it creates an asset bubble which inevitably will burst when the banks stop lending. (Boom=easy cheap lending and Bust = little, but more expensive lending) but it does not create jobs or go into the economy. The only way you get economic growth is when money is spent into the economy. It is growing tomatoes and kolokasi, wealth creating industries, and your toil, payment and subsequent spending that expands the economy.

Next time I see my Bank Manager, I am going to give him a big hug! I truly appreciate what they do now.

If you do ....... make sure your wallet is still in your pocket when you come out of the clinch ..... oh, and by the way, whatever you do DON’T sign anything!!!!

Sorry my friend.

But I honestly think you're delusional. I don't have the time to respond properly to all your posts, but you have provided absolutely zero evidence that Banks can create money from thin air.

I think you are very confused, or trying to create a conspiracy or a thesis against the Banks which is not an uncommon thing.

Firstly, you need to familiarise yourself with all the technical jargon and their meanings. I at least tried to research it, and my conclusion is that it is very complicated and 99% of people will have difficulty with the concepts and the theory.

I do however understand that it is an amazing balancing act, and that the Central Banks play a pivotal role in protecting the Banking Sector, people and the economy. They are critical.

And you are completely wrong. Banks can't create money from thin air. There is zero evidence to suggest they can create money from thin air. If they could do that, without repercussion, then there would be no issues for them going to the wall and they wouldn't even have a Credit Rating. Banks can even be removed from the markets where they are unable to borrow, a requirement that would not be necessary if they can create money from thin air.

What they can create is BROAD Money, and BROAD money is money that doesn't really exist and is created as a result of a very tangible transaction such as the sale of a house for instance. They are not the only ones to be able to do that. You and I can actually do the same thing if we wanted to as well as business which do it all the time and even on a daily basis.

You are just taking certain words from particular websites, but I am afraid that your interpretation is completely different to mine. Even the BoE explanation on how money is created is actually not an admission that it can create money according to your interpretation, but that Banks in general basically create BROAD money as an intermediary to facilitate transactions for the sale of property and other things. But they make it very clear that a transaction is taking place, and that BROAD money can only be created because the asset has a particular value in the market place. They are data entries on Balance Sheets. But that is not CREATING money. Only the Central bank can do that.

[Paphitis]

Paphitis:

Do banks really create money out of thin air?

https://www.weforum.org/agenda/2015/06/ ... -thin-air/

I am sorry but what he is saying is rubbish .... and is more concerned with transactions and transfers ..... than the creation of money. (Any way .... he is South African they have gold, diamonds ..... elephants and Rhino horn, they can use as collateral ....... they can never run out of collateral!)

Do Banks Create Money from Thin Air?

http://neweconomicperspectives.org/2013 ... n-air.html

“Where did the IOU come from? Was it created from thin air? More or less. Yes, a certain amount of paper and ink and work might have been involved in producing it, so its production didn’t come with zero cost. But typically the cost of making the promise will be so low in proportion to the amount promised, that we don’t go far wrong in thinking of the promise as having been produced from thin air, created ex nihilo as it were. And it is not as though to make a promise I have to pull the promise out of my pre-existing promise stash. The promise doesn’t really come from anywhere. “

So, they agree ..... new money does come ex nihilo ….. a Latin phrase meaning "out of nothing”.

Money creation in the modern economy

I have already posted this source but you rejected it I seem to remember ?

http://www.bankofengland.co.uk/publicat ... 14q102.pdf

First paragraph:

“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

Definition of NEW: Oxford Dictionary: Produced, introduced, or discovered recently or now for the first time; not existing before.

So, they also agree ..... new money does come ex nihilo ……. "out of nothing”.

Not doing too well so far mate! 2 agree, 1 not applicable.

I think you need to get back to the definitions of everything from M0, M1, M2, M3, M4 and Real Vs Broad Money.

No it is not the same as creating New Money from thin air and it never has been. The money was already there in the form of property owned by Person A. That is money, but DORMANT money. Person B is buying this property with money they don't have, so the Bank acts as an intermediary and facilitates the transaction in return for Security over the property and a contract to pay the debt back to a Bank over a certain period with interest.

Person A will get an IOU from the Bank which the Bank must honor. So the Bank/s are exposed to the IOU, and person B will need to pay the debt over time.

That is not Creating New money. It is creating BROAD Money.

In addition, there are limitations on how far the Banks can go before they affect their Credit Ratings and all that is deduced from the relationship of the M0, M1, M2, M3, M4 indices. I looked into it, but admit it is VERY complicated and very difficult to understand. However the basic take home principle is that Banks can't just create whatever they want whenever they want, and they can't create money from thin air, as all money has to be supported by existing wealth.

You would've heard the term Stress Tests! The Central Banks conduct these tests regularly. They are in fact audits on a particular Bank and their performance indices, how well they could cope with a run, as well as the Banks Liabilities (IOUs) Vs Assets. A Bank can go Bankrupt no problem. The job of the Central Bank is to introduce measures to avoid this from happening.

[Robin Hood]

Quote - from a previous post.......

“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.”

John Kenneth Galbraith (1908- ), former professor of economics at Harvard.

You are making it complicated ....... and like 99.9%+ of the population, you fall for the smoke and mirrors. You are spouting bank jargon without a foundation of knowledge as to what it means!

I will counter all your assertions with a very simple question:

You have said several times............. it isn’t new money it already exists. .... yes?

Wealth is a constant .... an ounce of gold will always be an ounce of gold, an hour of your labour will always be an hour of your labour, a ton of steel will always be a ton of steel, a donum of land will always be a donum of land ........ surely that is a simple fact of life. All the gold that has ever been mined, still exists today! It still holds within it the same wealth now as it was when it was dug out of the ground and refined into gold bullion ...... in thousands of years its wealth value has never changed.

In 1947 almost 50 % of the currency in circulation (UK) was in the form of note and coin. I think you will find that today, even though there are many more notes in circulation, it represents only 2-3%.

My question for you is .......... If this is not NEW currency....... where did the other 97% of currency, held mainly as bank deposits, come from?

What you demonstrate to me is that you do not understand the difference between wealth (a constant) and currency (a variable).

Firstly, you need to familiarise yourself with all the technical jargon and their meanings. I at least tried to research it, and my conclusion is that it is very complicated and 99% of people will have difficulty with the concepts and the theory.

You are starting at the wrong place! You need to fathom out the basics, the very fundamental principals of money creation ..... and THEN research how the banks exploit it. Before you can fly a 747 ..... you need to learn to fly a 152, even if you have remembered every word of the 747 Pilots Manual!

[Paphitis]

Quote - from a previous post.......

“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.”

John Kenneth Galbraith (1908- ), former professor of economics at Harvard.

You are making it complicated ....... and like 99.9%+ of the population, you fall for the smoke and mirrors. You are spouting bank jargon without a foundation of knowledge as to what it means!

I will counter all your assertions with a very simple question:

You have said several times............. it isn’t new money it already exists. .... yes?

Wealth is a constant .... an ounce of gold will always be an ounce of gold, an hour of your labour will always be an hour of your labour, a ton of steel will always be a ton of steel, a donum of land will always be a donum of land ........ surely that is a simple fact of life. All the gold that has ever been mined, still exists today! It still holds within it the same wealth now as it was when it was dug out of the ground and refined into gold bullion ...... in thousands of years its wealth value has never changed.

In 1947 almost 50 % of the currency in circulation (UK) was in the form of note and coin. I think you will find that today, even though there are many more notes in circulation, it represents only 2-3%.

My question for you is .......... If this is not NEW currency....... where did the other 97% of currency, held mainly as bank deposits, come from?

What you demonstrate to me is that you do not understand the difference between wealth (a constant) and currency (a variable).

Firstly, you need to familiarise yourself with all the technical jargon and their meanings. I at least tried to research it, and my conclusion is that it is very complicated and 99% of people will have difficulty with the concepts and the theory.

You are starting at the wrong place! You need to fathom out the basics, the very fundamental principals of money creation ..... and THEN research how the banks exploit it. Before you can fly a 747 ..... you need to learn to fly a 152, even if you have remembered every word of the 747 Pilots Manual!

No I'm terribly sorry RH. We both fall in the 99.9% I however actually make a very big effort in finding out and learning. You are just going for the Left Wing thesis. Basically, you're biting the hand that feeds you, and feed you it does.

I am starting in all the right places, and I will only look at sources such as the BoE, ECB, US Federal Reserve, and Reserve Bank of Australia. There you can find accurate information about M0, M1, M2, M3, and M4 as well as how and why the Central Bank orints money, what affect that has on the economy, how the Central Bank Capitalizes the Government through Commercial Lenders, what affect that has on the economy, how they conduct Stress Tests, all the indices they monitor, the Financial Services Act, as well as define the difference between money, broad money and how Commercial Lenders give out loans as intermediaries.

In all cases, money actually does change hands, both physically in the form of money, and electronically. Cash Reserves must be maintained at a minimum 3%

When a Government build infrastructure, like a road or hospital and they don't have money, they borrow. The construction of this infrastructure is done through a private firm who actually charges the Government with Progress Payments in the form of Broad Money into their Bank Account. They in turn pay wages to thousands of workers in Broad Form but who generally often withdraw real money to buy groceries or whatever they want to do.

These are no "data entries" They are debts. They can't just be extinguished like a data entry because they Banks are liable for that debt too. Yes thousands upon millions of people getting paid every day.

And you can thank the Banks that this actually occurs and for just how dynamic and robust the system really is. A system that has not failed us yet, but has generally made everyone more wealthy along with the poor who can afford to buy things, buy property and even invest for their retirement.

You often mention Varoufakis. Well, Varoufakis does not believe Banks can create money from thin air anymore than Tsipras does. Varoufakis is actually a well respected Australian Academic, and let me give you the tip he does know what is going on and he doesn't agree with you at all. He is not that silly.

We are lucky RH because in the West, the operations of the Central Bank are very transparent. Even all the Commercial Lenders publish all their Financial Statements and report to the Stock Market. Everything is available to us. There are no conspiracies.

It is very misleading to say banks create Money from thin air. They do nothing like that. They only create BROAD MONEY and there is a big difference because in order to create BROAD MONEY, a physical transaction must take place which usually involves a security and the Bank or lender makes a credit to someone's account which is an IOU but can be turned to physical money if the beneficiary wants to do that for some reason. Money does actually change hands. The Banks have an immediate liability, which they are hoping to have it paid of by the borrower in the future.

That is not creating money as you put it. You would have to be off with the fairies to think that. And no, Banks can't just delete these "data entries" either. They would go to the wall.

I suggest you do a lot more research because you're way off track.

[Paphitis]

And yes, I do understand how people say they hate the Banks and some people call them Banksters as if they are criminals.

Well, that is not the case. They are not "Banksters" or criminals. We have so many Banks, all trying to do the right thing and operate under the Act that Governs them all. But they are also Corporations just like Microsoft and just like Apple. They want to make money and they do well at making money for their shareholders.

They also offer great services, and make many things possible. They are intermediaries. The system where they can create BROAD Money is actually very revolutionary. It is amazing, literally that this very complex system works and it works for the benefit of Government, and its taxpayers and the people including the poor. We all have BROAD Money, loosely termed as wealth. You need to have Broad Money on you balance Sheet to make more BROAD Money through an intermediary. And that is what a Bank does. It facilitates a transaction which would otherwise not exist. It also assumes most of the risk. They actually do end up with an immediate liability which they need to support through their cash levels. The borrower is given a number of years to pay back.

Banks know the concept of BROAD Money and they know that BROAD Money is what is keeping all our economies alive. They even recognize intra-business Broad Money. for instance, a business having a momentary CASHFLOW issue and can't pay their employers. they go to the Bank. The Bank asks for their 7 day, 14 day and 30 day Accounts Payable and Accounts Receivable, which are effectively IOUs from other customers or business and also liabilities. These are just data entries on a piece of paper or in MYOB over the transactions of Goods and Services. The Bank, based on these accounts and provided Accounts Receivable is greater than Accounts Payable, issues the business with a 30 day overdraft facility to pay the workers. The debt however has to be paid in 30 days. Yes, BROAD money is not only created by Banks.

Now just imagine if all this were not possible. Can you see how dark the world will actually be? No jobs, no future, bad schools, bad hospitals, no Government infrastructure, you name it but the list goes on and on.

Do you actually think we would have a fair society? Do you actually think our society will function? It might! But do you actually think our lives would be comfortable?

Plus 99.9% of us would actually be broke. Zero or very little wealth because no BROAD Money. In fact Governments would be broke too.

[Robin Hood]

Paphitis:

No I'm terribly sorry RH. We both fall in the 99.9% I however actually make a very big effort in finding out and learning. You are just going for the Left Wing thesis. Basically, you're biting the hand that feeds you, and feed you it does.

No .... the British Government feed me .... I get a UK Govt. pension!

However to continue ...... I first started with an interest in this subject in 2002/2003, so unlike you I am not a newbie to the subject. I will give you a simple example of where your newness shines through!

You quote your newly learned term of the minute, ‘Broad Money’ and that has come straight off the BoE website, that you have recently read. However, if you actually understood what you are talking about you would have realised two things. Firstly it is a banking term not a monetary term, sounds impressive but really means nothing other than, “ ....money in any form including bank or other deposits (data entries) as well as notes and coins (cash).

Secondly, what they are referring to as money ..... isn’t! It is, in monetary terms, called a Fiat Currency! What is Fiat currency ?

Definition.
Any money declared by a government to be legal tender. State-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard. Intrinsically valueless money used as money because of government decree

Now check out ‘Money’ it is not the same as ‘currency’. (We discussed this earlier) Money has one quality that currency does not ...... it is a store of value over time and clearly currency is not, as it devalues. Providing you know the difference in actual terms the term ‘money’ is interchangeable with ‘currency’, but in reality not the same thing.

I rely on sources such as the BoE, ECG, US Federal Reserve, and Reserve Bank of Australia. There you can find accurate information about M0, M1, M2, M3, and M4 as well as how and why the Central Bank prints money, what affect that has on the economy, how the Central Bank Capitalizes the Government through Commercial Lenders, what affect that has on the economy, how they conduct Stress Tests, all the indices they monitor, the Financial Services Act, as well as define the difference between money, broad money and how Commercial Lenders give out loans as intermediaries.

Very good .......... keep going .......... you have about 5-6 years to go yet. THEN you will look back and see how you have been misled. But I am not going to argue with you.

Unlike you, I HAVE provided back-up from the Bank of England and other reliable informed sources ...... but according to you, their concise and unambiguous statement that ‘Every time a bank makes a loan it creates the same amount of New Money in another account.’ is not in fact correct, even though it is a quote from one of your preferred sources. So, either they have got it wrong or you have?

When a Government build infrastructure, like a road or hospital and they don't have money, they borrow.

Of course they take on the debt ..... at present they have no alternative! But look at what the Swiss are proposing and, I might add, what we also have been talking about in this thread. But you are so obsessed with the idea there is no alternative to the current system, except left wing, looney ideas from anarchists intent on destroying the capitalist system ....... anything to the contrary goes right over your head. The bankers rely on people like you to keep their system going!

The construction of this infrastructure is done through a private firm who actually charges the Government with Progress Payments in the form of Broad Money into their Bank Account. They in turn pay wages to thousands of workers in Broad Form but who generally often withdraw real money (YI: ‘real’ money IS broad money ........ often referred to as ‘cash’!!!!) to buy groceries or whatever they want to do.

This process remains unchanged if the BoE creates all this new money, instead of private banks? Having worked on large projects ($1Bn+) it does not actually work quite as simply as that! The private contractor raises the loan on behalf of the client ...... good system ...... the contractor is assured his payment from the banks(s) but the client pays off the debt.

These are no "data entries" They are debts. They can't just be extinguished like a data entry because they Banks are liable for that debt too. Yes thousands upon millions of people getting paid every day.

Banking is virtually 100% data entries ....... before computers they used fountain pens and books and before that, parchment and quill pens,. We have progressed since then but the principal is the same.

But you can’t explain who it is the bank has a liability to repay, because they don’t repay anybody .......... they have no liability ......... the borrower has a liability to the lender! The BoE tells you in the link YOU posted that ”.... the bank that created the debt, via the issuance of credit will write it off the books (data entry) and destroy as and when the debt is repaid.” Repayment of debt destroys the previously created New Money. Or have the BoE got that wrong to?

And you can thank the Banks that this actually occurs and for just how dynamic and robust the system really is. A system that has not failed us yet, but has generally made everyone more wealthy along with the poor who can afford to buy things, buy property and even invest for their retirement.

So, depressions, recessions, bank collapses (Lehman), property repossessions, trillions of $’s/£’s and €’s in bail-outs, booms and busts ........... regularly, over the years for decades and at ever shorter intervals ..........and you regard that as a great success story?

You often mention Varoufakis. Well, Varoufakis does not believe Banks can create money from thin air anymore than Tsipras does. Varoufakis is actually a well respected Australian Academic, and let me give you the tip he does know what is going on and he doesn't agree with you at all. He is not that silly.

Oh yes he does ...... to much jocularity in various forums and the press, he was reportedly advising Corbyn on it .... QE for the people! Born in Greece but educated in the UK through to his Doctorate ! When he refers to ‘ .... banks giving credit he is referring to currency creation through the loan process .... i.e. creating New money.

I suggest you do a lot more research because you're way off track.

I suggest that maybe you could answer my previous question .......... if you claim to be as knowledgeable as you would have us believe, that should be simple enough?

My question was:

In 1947 almost 50 % of the currency in circulation (UK) was in the form of note and coin. I think you will find that today, even though there are many more notes in circulation, it represents only 2-3%.

My question for you is .......... If this is not NEW currency....... where did the other 97% of currency, held mainly as bank deposits, come from?

[Pyrpolizer]

Paphitis you may want to have a look at the following extract from Erolz's book, to understand what RH is saying:
While I don't agree that money created from loans backed up by assets, is money out of thin air, the way it's currently done by Banks resulted in stealing the right of the Central Bank to regulate the money supply and the economy. This in turn results in hundreds of distortions and unhealthy economies let aside the risk of collapsing on a global scale.The positive effect that it already produced and makes you think it's a great system would not change if this right was withdrawn from the Banks. What would change are the negative effects and the risks. We 've seen what happened in Cyprus...
Notice how with this system every loan has the potential to create 10 times more loans...

Textbook descriptions: the multiplier model

Many economics textbooks use a ‘multiplier’* model of banking to explain how the 2.6 per cent of money that is cash is ‘multiplied’ up to create the 97.4 per cent that is simply liabilities of banks i.e. numbers in bank accounts. The model is quite simple and runs as follows:

A member of the public deposits his salary of £1,000 into Bank A. The bank knows that, on average, the customer will not need the whole of his £1,000 returned at the same time – it is more likely that he will spend an average of £30 a day over the course of a month. Consequently, the bank assumes that much of the money deposited is ‘idle’ or spare and will not be needed on any particular day. It keeps, or is mandated to keep by the central bank, back a small ‘reserve’ of say 10 per cent of the money deposited with it (in this case £100), and lends out the other £900 to somebody who needs a loan.

Now both the original depositor and the new borrower think they have money in their bank accounts. The original deposit of £1,000 has turned into total bank ‘deposits’ of £1,900 comprising £1,000 from the original deposit plus £900 lent to the borrower.

This £900 is then spent in the economy, and the shop or business that receives that money deposits it back into Bank B. Bank B then keeps £90 of this as its own reserve, while lending out the remaining £810. Again the process continues, with the £810 being spent and re-deposited in Bank C, who this time keeps a reserve of £81 while re-lending £729. At each point in the re-lending process, the sum balance of all the public’s bank accounts increases, and in effect, new money, or purchasing power, has been created.

This process continues, with the amount being lent getting smaller at each stage, until after 204 cycles of this process the total balance of the public’s bank deposits has grown to £10,000. Figure 2 shows this step-by-step process, with the additional lending (and the new money created as a result) shown in black.

Figure 2: The money multiplier model

figure2.PNG