Positive Money - Cranks?

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Re: Positive Money - Cranks?

#81  Postby Panderos » May 03, 2014 10:00 pm

Seems there have been a lot of negative responses to Martin Wolf with everyone from Frances Coppola to Paul Krugman weighing in. And in my humble opinion they are all pretty much full of shit and don't understand banking or economics. Not really an exaggeration.

PM's blog has a bunch of them.
"A witty saying proves nothing." - Voltaire
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Re: Positive Money - Cranks?

#82  Postby minininja » Oct 16, 2014 1:23 pm

Just seen this, - more from Martin Wolf:

[Disclaimer - if this is comes across like I think I know what I'm talking about, I want to make it clear that I don't. I'm just trying to get my thoughts down]
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Re: Positive Money - Cranks?

#83  Postby Panderos » Oct 17, 2014 8:13 pm

Thanks for the vid.

Theres a panel discussion after that (if you view on Youtube) with Ben Dyson. Somehow he always manages to come across slightly cranky. He talks about the way money is created in a way that I don't think is right. Yes generally broad money is increased by banks creating it (though there is also QE), but the more generalised way to put it is that banks spend money into existence rather than lend money into existence. It's just that one of the things they can spend on is a loan agreement. They 'buy' a mortage contract from someone who wants to buy a house, paying for it with newly created money. But they can also buy up other assets through newly created money, e.g. shares, corporate bonds, and other financial instruments. [They can also pay their staff that way, though that would reduce their capital (assets minus liabilities)].

So I don't think its necessarily true that you need to increase private debt in order to expand the money supply, (though I suspect that is a major way). You just need banks to create more money than they 'destroy' by 'selling' money out of existence (e.g. when someone pays the bank back, that money vanishes along with the loan contract - the bank has effectively sold the loan contract back to the borrower, reversing the initial transaction).

Anyway, I'm glad Ben has worked so hard to draw attention to this and I'd probably be completely ignorant on this were it not for his efforts (see the OP) but I wonder if it might be better in future if things were taken forward by the likes of Wolf, Adair Turner and Michael Kumhof who's understanding appears to go much deeper. Also PM's proposals read like they were written by sixth formers..
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Re: Positive Money - Cranks?

#84  Postby Clive Durdle » Oct 18, 2014 9:36 am

And the Pyramids and Aztec civilisations were all built without money.....

Maybe it is a market inefficiency!
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Re: Positive Money - Cranks?

#85  Postby minininja » Nov 27, 2014 7:01 pm

With the help of certain MPs there has been a debate in parliament about this. Apparently though the Economic Secretary to the Treasury wasn't listening to a word of it and ended the debate by basically saying 'everything is better the way it is, we just need to very slightly alter the way banks are regulated'.

Here's some highlights:

Full debate and selected highlights here.

Positive money has answered the questions put forward by Andrea Leadsom challenging their proposal here. Well worth a read.
[Disclaimer - if this is comes across like I think I know what I'm talking about, I want to make it clear that I don't. I'm just trying to get my thoughts down]
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Re: Positive Money - Cranks?

#86  Postby Panderos » Nov 30, 2014 5:47 pm

Thanks mini. On one hand I'm glad this is slowly getting more attention, and doubly glad that that attention includes the UK, and the House of Commons no less.

On the other I'm already starting to worry that the proposed solution will be a botched one. Getting it wrong could potentially be worse than leaving things as they are. I'm not sure PM's proposal is that bad but its whole 'Investment Account' system is flawed in my opinion. Investment accounts will constitute 'near-monies' which are the source of the instability in the current system - a number people treat as money which can disappear in an instant.

The best news, which I read from a PM commenter, is that Michael Kumhof (who resurrected the 'Chicago Plan' solution) has been appointed as an adviser to the BoE. Now that guy gets it, perhaps better than anyone.
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Re: Positive Money - Cranks?

#87  Postby ProVox » Aug 15, 2016 5:27 pm

I have just stumbled upon this forum and it looks interesting but this thread seems to have died. Any chance of resurrecting it?

I am a retired engineer not an economist but I have spent the last 12-13 years working out the way money is created and how the banking system works from the structure rather than in banking terminology, which I have always believed is intended to mislead.

I have just spent a couple of hours reading the thread and there are a lot of misconceptions, which 'UndercoverElephant' seems to have covered pretty well. His explanations are virtually spot on and all he has said is covered in the BoE Bulletin Q1: 2014. ‘Money Creation in the Modern Economy’ and corroborated by the following economist.

This man, a Professor of Economics at Southampton University, is the only person to have carried out an empirical experiment to prove exactly how money is created through the banking process. Prof. Dr.Richard Werner’s papers cover virtually everything you would need to know about money creation, its history and the all the reasons it is so misunderstood even by economists. As UE points out it is very difficult to get those who have been taught incorrectly to accept any alternative explanation.

You may find the following papers of interest.

http://www.sciencedirect.com/science/article/pii/S1057521914001434
http://www.sciencedirect.com/science/article/pii/S1057521914001070
http://www.sciencedirect.com/science/article/pii/S1057521915001477

He has also done a series of short video interviews that are fairly easy to follow but the detail is all in his papers on the subject.
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Re: Positive Money - Cranks?

#88  Postby UndercoverElephant » Sep 04, 2016 11:00 pm

ProVox wrote:I have just stumbled upon this forum and it looks interesting but this thread seems to have died. Any chance of resurrecting it?

I am a retired engineer not an economist but I have spent the last 12-13 years working out the way money is created and how the banking system works from the structure rather than in banking terminology, which I have always believed is intended to mislead.

I have just spent a couple of hours reading the thread and there are a lot of misconceptions, which 'UndercoverElephant' seems to have covered pretty well. His explanations are virtually spot on and all he has said is covered in the BoE Bulletin Q1: 2014. ‘Money Creation in the Modern Economy’ and corroborated by the following economist.


Thanks. :-)


This man, a Professor of Economics at Southampton University, is the only person to have carried out an empirical experiment to prove exactly how money is created through the banking process. Prof. Dr.Richard Werner’s papers cover virtually everything you would need to know about money creation, its history and the all the reasons it is so misunderstood even by economists. As UE points out it is very difficult to get those who have been taught incorrectly to accept any alternative explanation.

You may find the following papers of interest.

http://www.sciencedirect.com/science/article/pii/S1057521914001434
http://www.sciencedirect.com/science/article/pii/S1057521914001070
http://www.sciencedirect.com/science/article/pii/S1057521915001477

He has also done a series of short video interviews that are fairly easy to follow but the detail is all in his papers on the subject.


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Re: Positive Money - Cranks?

#89  Postby ProVox » Sep 05, 2016 5:04 pm

UE:
Nice to hear from you. I kept checking for replies but I thought everyone had died! :think:

I thought you put the case for the argument on how banks create money very well. One thing you said I would however question.

Fractional Reserve Banking has been proved by Werner not to be the method by which banks expand (multiply) the money supply. This is supported by the BoE statement that it does not require deposits to generate loans and thus expand the supply. Loans create deposits not the other way round.

FRB implies that a single bank cannot on its own create new money and Werner proved this not to be the case. The bank creates a credit account and, just like a credit account with a Card Company, it does not deposit money in that account. All it has to do is enter a credit limit, a limit usually larger than the limit agreed between bank and borrower because the credit limit has to cover the accumulating compound interest, calculated and added daily to the account.

Werner makes a statement I disagree with, when he says the bank creates money in the borrowers account. It does not work like that. (At least I don’t think so!) The bank simply creates an empty account with a credit limit, again just like a credit card account. It effectively allows you to spend money you do not have BUT ...... interestingly, neither does the bank. It is only when the borrower spends his non-existent money that the new money appears .......... in two places! The first is as the creation of new money when the recipient deposits the borrower’s cheque into his account, as a deposit and a liability to the bank but it also appears at the borrower’s credit account as a DEBIT.

A standard banking software package (a logical assumption?) would ADD a deposit to an account but would subtract a DEBIT from the balance in that account. Thus the account with a balance of zero would have the debit subtracted from zero. The account would go negative and the debt has been created! It must be able to do this to account for overdraughts.

When the borrower repays the loan amount, plus interest, the negative value decreases until it reaches zero again and the debt is settled.

Other than that single point I cannot fault your explanation(s). :thumbup:


How about expanding the scope of the thread and discussing PM’s suggestion of Central Bank created money and a withdrawal of the commercial bank’s current privilege to create electronic money out of thin air as debt (Revision to Banking Charter act 1844) and the separation of commercial and investment banks? (US - Glass Steagall act 1932.... or similar) IMO the idea has a lot of potential ................ much greater than it would first appear related to both Public and Private debt.
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Re: Positive Money - Cranks?

#90  Postby UndercoverElephant » Sep 05, 2016 7:43 pm

ProVox wrote:UE:
Nice to hear from you. I kept checking for replies but I thought everyone had died! :think:


I don't post much on this board any more.


I thought you put the case for the argument on how banks create money very well. One thing you said I would however question.

Fractional Reserve Banking has been proved by Werner not to be the method by which banks expand (multiply) the money supply. This is supported by the BoE statement that it does not require deposits to generate loans and thus expand the supply. Loans create deposits not the other way round.

FRB implies that a single bank cannot on its own create new money and Werner proved this not to be the case. The bank creates a credit account and, just like a credit account with a Card Company, it does not deposit money in that account. All it has to do is enter a credit limit, a limit usually larger than the limit agreed between bank and borrower because the credit limit has to cover the accumulating compound interest, calculated and added daily to the account.

Werner makes a statement I disagree with, when he says the bank creates money in the borrowers account. It does not work like that. (At least I don’t think so!) The bank simply creates an empty account with a credit limit, again just like a credit card account. It effectively allows you to spend money you do not have BUT ...... interestingly, neither does the bank. It is only when the borrower spends his non-existent money that the new money appears .......... in two places! The first is as the creation of new money when the recipient deposits the borrower’s cheque into his account, as a deposit and a liability to the bank but it also appears at the borrower’s credit account as a DEBIT.

A standard banking software package (a logical assumption?) would ADD a deposit to an account but would subtract a DEBIT from the balance in that account. Thus the account with a balance of zero would have the debit subtracted from zero. The account would go negative and the debt has been created! It must be able to do this to account for overdraughts.

When the borrower repays the loan amount, plus interest, the negative value decreases until it reaches zero again and the debt is settled.

Other than that single point I cannot fault your explanation(s). :thumbup:


Erm...to be honest I struggled to follow that. I have a lot of other stuff to think about right now, and there's no more room in my brain for that. :-)


How about expanding the scope of the thread and discussing PM’s suggestion of Central Bank created money and a withdrawal of the commercial bank’s current privilege to create electronic money out of thin air as debt (Revision to Banking Charter act 1844) and the separation of commercial and investment banks? (US - Glass Steagall act 1932.... or similar) IMO the idea has a lot of potential ................ much greater than it would first appear related to both Public and Private debt.


Well, personally I am a bit short of time and brain space right now, but maybe somebody else might join in!
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Re: Positive Money - Cranks?

#91  Postby Evolving » Nov 05, 2016 7:08 pm

How extremely stupid not to have thought of that - T.H. Huxley
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Re: Positive Money - Cranks?

#92  Postby minininja » Nov 05, 2016 8:42 pm



As with a lot of this stuff I think there's some very important points and also (as far as I understand) some misinformation.

The question is what to do about it. How can we redesign the global economy to bring it in line with the principles of ecology? The most obvious answer is to stop using GDP to measure economic progress and replace it with a more thoughtful measure – one that accounts for the ecological and social impact of economic activity. Prominent economists like Nobel Prize winner Joseph Stiglitz have been calling for such changes for years and it’s time we listened.

But replacing GDP is only a first step. While it might help refocus economic policies on what really matters, it doesn’t address the main driver of growth: debt. Debt is the reason the economy has to grow in the first place. Because debt always comes with interest, it grows exponentially – so if a person, a business, or a country wants to pay down debt over the long term, they have to grow enough to at least match the growth of their debt. Without growth, debt piles up and eventually triggers an economic crisis.

The first paragraph I've quoted here, I think is actually far more important and accurate than the second. Debt and the way interest expands the money supply isn't "the reason the economy has to grow", it's the reason we have inflation. But inflation does not equal GDP growth. In fact specifically GDP measured in real terms is a measure of the production of the economy adjusted for inflation. And consistent levels of inflation are a useful tool for stabilising the economy through the reduction in value of hoarded cash and reducing the size of debts. While we need to focus the economy on sustainability, efficiency, cutting down on resource consumption and creating a circular economy in terms of the physical impact we have on the world, that doesn't necessarily have to link to the quantity of money. It also is a good idea to heavily regulate and democratise the creation of money to stop that power being used to unjustly capture wealth as the banks currently do. But doing so isn't the be-all and end-all of fixing the economy and making it work sustainably for people and the planet. I'd also say that, even if you have the majority of money created by the government that still doesn't stop it functioning as debt. As soon as it is spent or lent or used in the economy it has both a debit and credit entry on the balance sheet and something is always expected back in return. Money as we know it is debt. Unless you want a 100% gift economy where everything is either given or shared without payment. Or perhaps a vote based system where everyone gets an equal say each day in what they need from the economy and, so far as we have the resources to provide, that dictates who gets what.

Sorry that was just a random string of consciousness and probably not at all accurate either. :think:

But it's good to see alternative economic ideas in the mainstream media since the neo-liberal orthodoxy has been far too strong for far too long.
[Disclaimer - if this is comes across like I think I know what I'm talking about, I want to make it clear that I don't. I'm just trying to get my thoughts down]
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