Cyprus-Forum.com

[Paphitis]

I bet that at least 97% of the money currently in your accounts was electronically deposit. Sometimes even 100%

Not many of you would have walked in to a Branch and deposited hard cash. Some people do. Savers, Shop Merchants do it a lot sometimes every day.

But if you work or are on a Government benefit, it is all electronic. Government Benefits are indeed sometimes created from thin air through the Central Bank. That is true, but the Reserve bank can also print money to support it.

So, the money in your accounts does not exist. At least 97% does not exist.

So MOST deposits are effectively IOUs from the Bank. That is what it is. It is also money on call, That is, you can withdraw cash any time you want. If we don't have this fractional system, then extinguish about 97% of you deposits for a start. Can't have it both ways. So a deposit of $100 will become a deposit of $3.

The fractional system relies on the fact that Depositors will not want all their money at once. They legally can and if it does occur then we call that a "Run on the Banks" which they would not cope with. End result is the Banks will close shop and introduce capital controls.

[DT.]

what the hell have you guys been going on about?

[Robin Hood]

what the hell have you guys been going on about?

How money is created! We have ..... errrr .... issues over which concept is correct!

You can treat the subject as about as exciting as watching paint dry or grass growing or you could learn about something some thing which is all about your very existence ..... and future generations. Most believe you put your money into the bank and they then lend it out to others ....... every body, even us, agree that is not so.

[Robin Hood]

Paphitis:
our last four posts are FULL of misunderstanding, misconception even the BoE identifies as such in their 2014 Bulletin. It would take far too long to correct every point so I will comment only those that are identified as wrong by the BoE:

13/4 -2;28

The only thing you got correct was the date and time.

• A bank does not issue an IOU when it creates a loan! It enters a credit limit ..... the IOU is what the borrower issues when he pays the recipient! The bank has no liability ....... the borrower does!
• When the recipient pays the borrowers IOU into his account, once the check has cleared, the borrower has created NEW MONEY in another’s account, with the cooperation of the issuing bank.
• The only thing the bank has as a asset is borrowers debts ..... IOU’s!
• Central banks do not create electronic money EVER! The Central bank issues only note, which are tangible IOU’s, which is considered ‘broadly speaking’, exactly the same as any other broad money when it is in your account.
• The only liability the banks have is to depositors, to repay the cashable deposits they borrow when you pay anything into your account. (Oh .... and shareholders/bondholders but, they are secured creditors, the depositors are not!)
• A bank run is when people try to redeem their deposits (100%) from the 2% held as cash. As you correctly say everything else is 11010010100101001110100101001001010010101, it is all created by banks out of nothing.

The rest is unintelligible rubbish; a mix-n-match of bank terminology.

13/4 – 2:43

• The banking system is NOT fractional! BoE ....... the ‘multiplier’ concept is not the method used to create new currency.
• The 97-98% is produced as debt, by commercial banks as new money every time they give credit and it is taken up (i.e. a ‘loan’ which isn’t!)
• Werner ‘tried and tested’ the banking accounting system (The only live test performed in the history of banking) and proved that banks the commercial banks DO indeed create money out of nothing. The BoE came to exactl the same conclusion as have others.
• Borrowers create the IOU’s not the banks. The banks have NO liability for the loan because they have no liability to repay any other entity. The liability remains with the borrower. It is simply book keeping acrobatics. In reality, the banks consider the debt as an asset on their books even though they created it from nothing and it is effectively a negative value ..... only accountants can do that. (The ‘apples’ example ‘Pragmatism vs accounting’?)
• The only IOU that the bank creates is the one in your account ...... they have given you a receipt for borrowing your deposit which they have a liability to repay ...... in theory!
• Banks do not create IOU’s out of thin air ........ they create currency via debt, referred to as NEW MONEY.
• Fractional reserve banking principal has been dead for the last 30 years! The currently accepted concept is the ‘Intermediary concept’ which has also been proved to be incorrect.
• The system is crap, which is why it is such turmoil. It is as robust as tissue paper. Do you never watch the Financial News programmes?
• The banks in Cyprus fell for the same reason all banks fall. They created and then loaned ‘fantasy money’ to a bunch of greedy people. Unfortunately, their excesses caused economic collapse, loss of businesses and jobs and, when they can no longer meet their repayments, many will lose their homes as a result.
• I think the percentage of non-performing loans is greater than 1-4%? The increase in the money supply is as a result of bad debt. i.e. money that was created out of nothing by the banks, passed into circulation ..... never to be recovered. The increase in the money supply is a far more accurate test of failed debt.

13/4 – 2:55

Bottom line Robin Hood, is that you do not know how Banking and business works at all. I really do mean that

.
Coming from you? ........

Paphitis:

YOU have excluded yourself or shielded yourself from the system as much as you possibly can, which is why you manage to get everything so ass-about-face and so full of misconception and misunderstanding! You misconstrue the fundamental basics and then cross reference to aspects that are not part of the banks accounting system, in an attempt at validating your perception!

YOU are pushing the narrative which doesn't exist.

13/4 – 3:20

• ALL (100%) of the ‘money’ in your account IS electronic and IS an electronic IOU. Very difficult to feed paper notes into a computer!
• Cash, cheques are all electronic once they enter the system. What is with this idea that cash is in some way different from other ‘BROAD’ money? BoE .... draw cash or vault cash .... is broad money.
• Central Banks do not normally create money from thin air. The exception is QE but even then the CB does not create it, the commercial banks do. The CB acts as an intermediary between the Government (selling bonds) and the banks (exchanging bonds for electronic money).
• Every deposit (100%) in your account is electronic but, in theory can be converted to cash ...... except that the banks only have 2% available as such.
• The ‘fractional’ bit does not come into it at all, I can’t for the life of me see why you think it does!
• “The fractional NO! ..... just the system relies on the fact that Depositors will not want all their money at once” At least you almost got that right!

[boomerang]

I have been reading this thread and I admit RH knows what he is talking about...

in layman's terms here is how it works...

a brand new bank opens and a customer walks in to open an account and deposit $1000...as soon as the account is open he deposits $1000 and gets a receipt, an IOU, from the bank...this becomes a bank liability

then another customer walks in the bank and borrows $900...the bank creates an account and lends the money out...this is a bank asset account...

a day later the first customer walks in the bank and withdraws his $1000 dollars and closes the account...

but in the mean time the bank is servicing a loan, a bank asset, that it created out of thin air...thus the bank was able to create money out of nothing...

I do not think it can get simpler than this...we can go into the way the bank balances the books, assets vs liabilities, but at the and of the day the bank created money out of thin air...

[Pyrpolizer]

what the hell have you guys been going on about?

I was hoping YOU specifically would pop in and shed some light!
What a disappointment you've been!

[Pyrpolizer]

what the hell have you guys been going on about?

How money is created! We have ..... errrr .... issues over which concept is correct!

You can treat the subject as about as exciting as watching paint dry or grass growing or you could learn about something some thing which is all about your very existence ..... and future generations. Most believe you put your money into the bank and they then lend it out to others ....... every body, even us, agree that is not so.

As a consultant to BANKS himself he knows a lot! I guess either he doesn't want to speak by revealing "secrets", or he simply wants to blur the issue

[Pyrpolizer]

• The banking system is NOT fractional! BoE ....... the ‘multiplier’ concept is not the method used to create new currency.
• The 97-98% is produced as debt, by commercial banks as new money every time they give credit and it is taken up (i.e. a ‘loan’ which isn’t!)
• Werner ‘tried and tested’ the banking accounting system (The only live test performed in the history of banking) and proved that banks the commercial banks DO indeed create money out of nothing. The BoE came to exactl the same conclusion as have others.

Yeah, I came to that conclusion as well, theoretically if the multiplier effect was indeed the method loans should be much higher than deposits.
Factual evidence though does not confirm this "multiplier" effect.
http://blogs.reuters.com/globalinvestin ... lveraging/

It looks like a)taking in deposits and b)offering loans are 2 distinct activities of Banks and the ratio between the 2 can be anything. Question is can it be 0:1??

[Paphitis]

My my, I see many of you have no clue. First get to know the definitions.

Money is currency. A Bank is unable to create money or currency. It can only make an IOU. The money is a fixed amount of hard currency or cash flow available to a Bank to support all the IOUs. If the cash demand by depositors exceeds the money supply of the Banks liquidity and cash flow, then there are big problems.

A Bank creates IOUs through lending. There are many types of lending products. You have high interest non-secured lending, low interest secured lending supported by collateral, equity borrowing, marginal lending through a share portfolio, business and commercial lending as well as short term overdraft borrowing. All types of loans are secured against collateral except non-secured loans which Banks don't particularly like.

Now, when a loan is made, an IOU is credited to someone's account. This will appear on a Bank's balance sheet as an asset if the loan is performing. That's because the Bank will make a profit from the interest. Now not all the interest charged is profit. The profit is the total interest - inflation - other costs - base rate. The total profit to the Bank is around 1 to 2% each year. The Banks make money on volume. The margin is actually pretty thin. Now we see the loan as an asset to the Bank. Yes but only as long as the loan exists. The asset has declining value as the borrower is paying it off. Eventually it will disappear. The Bank is left with the profit from the interest over the life of the loan. This profit on the Bank's bottom line then is entered as an asset on its balance sheet and is returned to share holders through dividend payments.

Now, as I said, an IOU is not creating money. And the reality is that whilst a loan is a Banking asset whilst it is performing, in actual fact it is a liability to start off with. That is because it is an IOU in someone's account and this IOU is at call in full and even within a 24 hour period. Now a Bank would prefer that the IOU maintains its electronic form, but it can also be withdrawn from the Bank's cash supply. A Bank can do it because they are presuming that only 3% of these IOUs will be withdrawn at any given day. Usually, it is way under this.

Now, a Bank is predominately a secure way for people to deposit money. When a deposit is made, the Bank takes the money and credits your account with an IOU. The money goes towards the Bank's money supply or cash flow. The same money can be given out to another customer who makes a withdrawal from their deposit account. These deposits are liabilities to the Bank because they incur a loss to the Bank through interest payments to the depositor calculated daily.

A Bank of course is not alone in being able to create IOUs. Corporations can do it as well. Corporations like Apple, Microsoft, Shell, BP, Tesla, Mercedes, QANTAS, and every other big corporation or multi national can create an IOU and they too appear on its balance sheet as an Account Receivable which is an asset, or an account payable which is a liability. That is not all. Every micro business, such as contractors, trades, small shop merchants can also create IOUs in the same way as a multi national can. A Bank can even offer overdraft lending to a multi national or micro business based on its accounts payable and accounts receivable. These are unsecured short term loans usually only lasting about 30 days. Overdrafts are used by businesses experiencing cash flow issues due to its creditor accounts.

Now, a Bank can't sustain itself if it only takes deposits and can't make IOUs in the form of lending. What kind of Bank would just take your money as a deposit, and mostly through electronic means, pay interest on it and not make money from other functions such as lending or by using your money to buy assets? None!!!!!! They will tell you to put it in your mattress and to piss off! They are not a charity.

However, they are regulated to take your money. These deposits are also under a Capital Guarantee arrangement up to a certain amount reducing the risk to the depositor to pretty much zero in most cases.

I repeat, IOUs are NOT money or currency creation. Money supply is fixed or the physical availability of hard cash in the form of currency. The Central Bank however can create money from thin air and it does this to Capitalize the Banks and Government whenever the Government pays Billions of Trillions worth of wages and benefits to public servants and pensioners. It also regulates interest rates to manipulate money supply and maintain adequate supply levels.

In addition, every utility bill from you electricity account, water bill, gas bill, telecommunications and Internet bills issued by the utilities setvicing your household are creating an IOU whenever they send you a bill into your letter box. Now, you can pay these Bills with cash, or send then electronic money through your Bank via an electronic transfer. Once again, it's an IOU to the utility company.

It really can't get simpler than that!

[supporttheunderdog]

What I am trying to figure out is how in the abstract world of Largely electronic IOU! Though some years back they all existed on paper in the ledgers of banks, etc, the process of wealth creation fits in, that is the supply of goods and services, and the relationship of the total value of those as expresed in monetary terms to the value of the Iou.