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Randy Wray — What Do Banks Do? What Should They Do?
Minsky.
Economonitor — Great Leap Forward What Do Banks Do? What Should They Do? L. Randall Wray | Professor of Economics and Research Director of the Center for Full Employment and Price Stability, University of Missouri–Kansas City
Basically, for consumers, banks lend us our future (anticipated) savings.
They make a particular class of consumer spending…personal investment in a home and automobile… possible…for most it is impractical to save first before acquiring them.
Virtually everything else can be purchased out of income as consumed.
Paul, I think that becoming less true. Many durable goods are pretty pricey, and purchases are likely financed.
What is true is that vehicles are the new mortgage. There was a time that many people paid cash for a new vehicle or bought used. New dealers advertise the monthly rather than the price.
This idea that banks lend us our future income, or draw our future income into the present… I've been thinking about this lately. Seems like an incredible defficiency of present aggregate effective demand. Why must we decrease our future income in order to increase our present income? If the world always exists as the present, which it does (the future and the past are abstractions, every moment we are always living in the present)… then why can't we increase our present income AND our future income? Our current-present and the future-present are both able to produce whatever they can produce. And if the current-present is any indication of the future-present, then we can be enjoying higher standards of living in both today's present and in the future present.
So, why are we taking away from people's future income when we increase their current income?
Jl. under the current system, money denominated in a currency comes from only two sources, either private lending or issuance of government liabilities.
Banks create new money when they make loans. Private lending other than by banks just moves existing money around without changing the amount.
Money is extinguished through taxation and repaying bank loans.
Net money is the difference between money creation and destruction.
"Paul, I think that becoming less true. Many durable goods are pretty pricey, and purchases are likely financed."
Tom, less true or not, we don't have to have those things, and buying on credit insures that we can have less of them anyway.
It's impossible to spend beyond your means sustainably…no amount of credit can change that reality, so why try?
JK, not only is spending future income a bad idea unless it is absolutely necessary, doing so reduces one's income, so that ultimately he is able to afford less.
Interest payments deduct from your income…borrowing effectivey lowers your wage, so borrowing lowers the wages of everyone participating and raises the income of banks.
For that rreason I positioned myself so that I have zero debt, and will never have any again (I did have a small mortgage and I have bought several cars on credit, but paid them all off quickly, saving a lot of interest).
I pay cash for what I want or I don't buy it. I can easily affor what I need.
Liabilities accrue out of thin air (the opposite of money creation) at the average rate times Credit Outstanding.
At say 4% of Credit Outstanding that means liabilities are accruing at a rate of ~$1.8T per year…
…which can only be extinguished by net public spending…and a massive transfer of wealth from the 99.9% to the 0.1%.
Except for what is necessary for investment I think credit is extremely destructive, and it put's bankers at the toll gate of growth…every transaction is a ka-ching for them.
Public investment should be funded by government spending, credit should be limited to non-essentials.
Basically, capitalism should be confined to a sandbox where it can't bring whole societies down.
What ever banks do, they should do as 100% private businesses.
Otherwise, Professor Wray, "Equal Protection under the Law", is being violated in favor of so-called creditworthiness which not that long ago include living in a black neighborhood.
Besides, shares in Equity is an endogenous money form that does not require government privileges.
I understand the current institutional arrangements that make this situation a reality. My comment was meant as questioning the adequacy of these current institutional arrangements.
The way to do that is to increase the government contribution and reduce the private contribution to wealth creation. Of course finance capital will resist this to the death, claiming that private capital and private enterprise are the fundamental building blocks of capitalism, as well as sowing a lot of fear about government finance and "sound money," painting a dire picture of the future as it happening now. It's all rhetoric and special pleading but it's worked so far.
"Paul, I think that becoming less true. Many durable goods are pretty pricey, and purchases are likely financed."
Tom, less true or not, we don't have to have those things, and buying on credit insures that we can have less of them anyway.
Tell the middle class and lower middle class (one paycheck from being poor) that they have to forego refrigerators and washer-dryers. It's a matter of conventional lifestyle and the customary living standard now. Based on the adds I see focused on credit, I suspect that that a lot of people are financing these large purchases that they deem necessary expenses.
if you haven't got much money at present, but if you bought a car then you could make more money in the future, then it would make sense for you to borrow money to buy the car, and for someone else to lend you the money.
"Why must we decrease our future income in order to increase our present income?"
Obviously if you think that borrowing (or lending) money will result in a net loss for you over time then you probably wouldn't decide to do it. But in most cases people think that it will result in a net benefit for them over time, given their current situation, so they decide to do it.
"banks lend us our future (anticipated) savings."
The bank finance makes those future savings possible.. that's the idea.
Basically, for consumers, banks lend us our future (anticipated) savings. paul meli
Actually they lend us our own legally stolen purchasing power, especially from the poor since the poor are less so-called credit worthy.
But the good news is that once we admit that the government-backed banks are thieves, then universal restitution with new fiat is justified. And then, people will have far less need to borrow in the first place. Land reform ala Leviticus 25 and the redistribution of the common stock of large corporations might be justified too.
This country SHOULD have been built with inexpensive fiat for government debts and ethical forms of endogenous money such as purely private credit and common stock for private debts only. But that was not the case so injustice is widespread.
"Actually they lend us our own legally stolen purchasing power"
If you borrow money from a bank to buy something, your purchasing power goes up. But you're saying that your purchasing power is stolen from you, and thus goes down. I'm not sure that makes sense.
But you're saying that your purchasing power is stolen from you, and thus goes down. y
Your borrowing steals purchasing from others and their borrowing steals purchasing power from you. Meanwhile, those who can't or won't borrow are stolen from by everyone who gets a loan from the government backed banks.
"If you borrow money from a bank to buy something, your purchasing power goes up."
This is true.
This is NOT "stealing" purchasing power from someone else under a system of state currency.... maybe your point would be true under a metallic-based system as there is limited metals... but under a non-metallic system, we can lend in unlimited amounts and this does not "take from others" or "steal"....
You are borderline OCD on this "stealing" pov.... do the math...
From Tom: "under the current system, money denominated in a currency comes from only two sources, either private lending or issuance of government liabilities."
Anybody who dosent agree with this is a moron. This is one measure of a moron.
"Your borrowing steals purchasing from others" Beard
Borrowing by lots of people to buy assets, like houses, will push the market price of those assets up if they are in strictly limited supply, but I don't think that qualifies as 'stealing'.
I hate banks as they exist at present, and also hate losing out when asset prices rise and I lose relative to others, but nonetheless I think your bible-thumping hellfire-and-brimstone narrative is far too simplistic.
I think you have nailed it with F, F thinks we are still under the metallic standards just like Israel in the OT... F is caught up in the OT paradigm with the rest of Christendumb like those standards still apply....
F,
The nations are NOT Israel.
We roll with state currency in the nations: "nomisma".
This system utilizes fiscal agents to advance balances of the state currency either for payment of govt sector provision or under lending agreements and THEN these agents collect the taxes.... get over it... the nations are NOT Israel... sober up.
I think you have nailed it with F, F thinks we are still under the metallic standards just like Israel in the OT. Matt Franko
Not at ALL! You anger me with your slander but hopefully you will continue to reduce your credibility with the others.
But if we were on a fixed* or pseudo-fixed money supply then by definition purchasing power would be impossible or difficult to create BUT it could be transferred via honest lending.
*Not on your life would I ever advocate a fixed money supply or any other means to artificially limit the creation of money. I just INSIST that money creation be done ethically.
Borrowing by lots of people to buy assets, like houses, will push the market price of those assets up if they are in strictly limited supply, but I don't think that qualifies as 'stealing'. y
What else would you call borrowing from a counterfeiter?
But since the counterfeiting cartel is legal, everyone who supports it is complicit in the theft and in the oppression of the poor too.
nonetheless I think your bible-thumping hellfire-and-brimstone narrative is far too simplistic. y
To be sure, the present money system has encouraged (actually demanded - so as to pay the usury) a lot of growth but has not automatically or justly distributed the wealth created therefrom.
As for the Bible, it is entirely consistent with common stock as private money and with ethical money creation in general.
As for thumping, I refuse to plagiarize the Bible for fear of the Lord. If you reject ethical money creation as a result, that's NOT my problem.
all student loans since 2010 are direct govt loans.... the govts fiscal agents bankrupted themselves and the govt had to take this function over...
Also, currently over 90% of all home loans are being done by the now 100% govt owned Fannie/Freddie after they bankrupted themselves back in 2008 ... so virtually ALL home lending is being done directly by the govt as opposed to your "counterfeiting cartel"...
The borrowers in these loan agreements are instead of paying the govts fiscal agents your dreaded 'usury' are now mathematically paying some additional taxes on the principle that they borrow that are based on APR like a loan...
So what you are asserting is that the govt is 'counterfeiting' its own "money"...
You dont even know what the heck is going on in the world...
All lending perhaps sans some of the auto financing (and govt owns GM and Chrysler so any manufacturer financing from those 2 is govt loans) and small amounts of consumer loans is being done by non-govt entities...
How can the govt be 'counterfeiting' its own "money"?
Paul, the point I am making is that many people now finance durables, as well as their vehicles and housing if they don't rent. That all adds to the monthly nut along with insurance, student loans perhaps, etc. A great deal of the consumer economy is income brought forward through debt. A lot of people have little discretionary income left over, and when they need/want something, they put in on the cards.
"Tell the middle class and lower middle class (one paycheck from being poor) that they have to forego refrigerators and washer-dryers." - Tom
Don't forget I advocate universal restitution with new fiat as a MINIMUM requirement of reform , at least until all bank deposits are 100% covered by reserves.
So why borrow when one has cash?
I don't use "steal" or "legal counterfeiters" lightly so restitution is, of course, REQUIRED.
Lending by the monetary sovereign, while not counterfeiting, is just a more direct violation of equal protection under the law unless every citizen REGARDLESS of ability to repay receives the same amount under the same terms.
So the government might as well just give away fiat, which I advocate, at least until all deposits are 100% covered by reserves and afterwards as a BIG.
32 comments:
Basically, for consumers, banks lend us our future (anticipated) savings.
They make a particular class of consumer spending…personal investment in a home and automobile… possible…for most it is impractical to save first before acquiring them.
Virtually everything else can be purchased out of income as consumed.
Paul, I think that becoming less true. Many durable goods are pretty pricey, and purchases are likely financed.
What is true is that vehicles are the new mortgage. There was a time that many people paid cash for a new vehicle or bought used. New dealers advertise the monthly rather than the price.
This idea that banks lend us our future income, or draw our future income into the present… I've been thinking about this lately. Seems like an incredible defficiency of present aggregate effective demand. Why must we decrease our future income in order to increase our present income? If the world always exists as the present, which it does (the future and the past are abstractions, every moment we are always living in the present)… then why can't we increase our present income AND our future income? Our current-present and the future-present are both able to produce whatever they can produce. And if the current-present is any indication of the future-present, then we can be enjoying higher standards of living in both today's present and in the future present.
So, why are we taking away from people's future income when we increase their current income?
Jl. under the current system, money denominated in a currency comes from only two sources, either private lending or issuance of government liabilities.
Banks create new money when they make loans. Private lending other than by banks just moves existing money around without changing the amount.
Money is extinguished through taxation and repaying bank loans.
Net money is the difference between money creation and destruction.
"Paul, I think that becoming less true. Many durable goods are pretty pricey, and purchases are likely financed."
Tom, less true or not, we don't have to have those things, and buying on credit insures that we can have less of them anyway.
It's impossible to spend beyond your means sustainably…no amount of credit can change that reality, so why try?
JK, not only is spending future income a bad idea unless it is absolutely necessary, doing so reduces one's income, so that ultimately he is able to afford less.
Interest payments deduct from your income…borrowing effectivey lowers your wage, so borrowing lowers the wages of everyone participating and raises the income of banks.
For that rreason I positioned myself so that I have zero debt, and will never have any again (I did have a small mortgage and I have bought several cars on credit, but paid them all off quickly, saving a lot of interest).
I pay cash for what I want or I don't buy it. I can easily affor what I need.
Tom, one other thing about credit…
Liabilities accrue out of thin air (the opposite of money creation) at the average rate times Credit Outstanding.
At say 4% of Credit Outstanding that means liabilities are accruing at a rate of ~$1.8T per year…
…which can only be extinguished by net public spending…and a massive transfer of wealth from the 99.9% to the 0.1%.
Except for what is necessary for investment I think credit is extremely destructive, and it put's bankers at the toll gate of growth…every transaction is a ka-ching for them.
Public investment should be funded by government spending, credit should be limited to non-essentials.
Basically, capitalism should be confined to a sandbox where it can't bring whole societies down.
Just my $0.02
What ever banks do, they should do as 100% private businesses.
Otherwise, Professor Wray, "Equal Protection under the Law", is being violated in favor of so-called creditworthiness which not that long ago include living in a black neighborhood.
Besides, shares in Equity is an endogenous money form that does not require government privileges.
"What ever banks do, they should do as 100% private businesses."
That works for me. And they should have to suffer their own losses by themselves.
Tom,
I understand the current institutional arrangements that make this situation a reality. My comment was meant as questioning the adequacy of these current institutional arrangements.
The way to do that is to increase the government contribution and reduce the private contribution to wealth creation. Of course finance capital will resist this to the death, claiming that private capital and private enterprise are the fundamental building blocks of capitalism, as well as sowing a lot of fear about government finance and "sound money," painting a dire picture of the future as it happening now. It's all rhetoric and special pleading but it's worked so far.
"Paul, I think that becoming less true. Many durable goods are pretty pricey, and purchases are likely financed."
Tom, less true or not, we don't have to have those things, and buying on credit insures that we can have less of them anyway.
Tell the middle class and lower middle class (one paycheck from being poor) that they have to forego refrigerators and washer-dryers. It's a matter of conventional lifestyle and the customary living standard now. Based on the adds I see focused on credit, I suspect that that a lot of people are financing these large purchases that they deem necessary expenses.
JK,
if you haven't got much money at present, but if you bought a car then you could make more money in the future, then it would make sense for you to borrow money to buy the car, and for someone else to lend you the money.
"Why must we decrease our future income in order to increase our present income?"
Obviously if you think that borrowing (or lending) money will result in a net loss for you over time then you probably wouldn't decide to do it. But in most cases people think that it will result in a net benefit for them over time, given their current situation, so they decide to do it.
"banks lend us our future (anticipated) savings."
The bank finance makes those future savings possible.. that's the idea.
Basically, for consumers, banks lend us our future (anticipated) savings. paul meli
Actually they lend us our own legally stolen purchasing power, especially from the poor since the poor are less so-called credit worthy.
But the good news is that once we admit that the government-backed banks are thieves, then universal restitution with new fiat is justified. And then, people will have far less need to borrow in the first place. Land reform ala Leviticus 25 and the redistribution of the common stock of large corporations might be justified too.
This country SHOULD have been built with inexpensive fiat for government debts and ethical forms of endogenous money such as purely private credit and common stock for private debts only. But that was not the case so injustice is widespread.
"Actually they lend us our own legally stolen purchasing power"
If you borrow money from a bank to buy something, your purchasing power goes up. But you're saying that your purchasing power is stolen from you, and thus goes down. I'm not sure that makes sense.
But you're saying that your purchasing power is stolen from you, and thus goes down. y
Your borrowing steals purchasing from others and their borrowing steals purchasing power from you. Meanwhile, those who can't or won't borrow are stolen from by everyone who gets a loan from the government backed banks.
Borrowing, short of robbery, is the only avenue for the great unwashed masses to achieve the American Dream.
Half of Americans below or near poverty line
F,
Here's y:
"If you borrow money from a bank to buy something, your purchasing power goes up."
This is true.
This is NOT "stealing" purchasing power from someone else under a system of state currency.... maybe your point would be true under a metallic-based system as there is limited metals... but under a non-metallic system, we can lend in unlimited amounts and this does not "take from others" or "steal"....
You are borderline OCD on this "stealing" pov.... do the math...
rsp
From Tom: "under the current system, money denominated in a currency comes from only two sources, either private lending or issuance of government liabilities."
Anybody who dosent agree with this is a moron. This is one measure of a moron.
rsp,
"Your borrowing steals purchasing from others" Beard
Borrowing by lots of people to buy assets, like houses, will push the market price of those assets up if they are in strictly limited supply, but I don't think that qualifies as 'stealing'.
I hate banks as they exist at present, and also hate losing out when asset prices rise and I lose relative to others, but nonetheless I think your bible-thumping hellfire-and-brimstone narrative is far too simplistic.
y,
I think you have nailed it with F, F thinks we are still under the metallic standards just like Israel in the OT... F is caught up in the OT paradigm with the rest of Christendumb like those standards still apply....
F,
The nations are NOT Israel.
We roll with state currency in the nations: "nomisma".
This system utilizes fiscal agents to advance balances of the state currency either for payment of govt sector provision or under lending agreements and THEN these agents collect the taxes.... get over it... the nations are NOT Israel... sober up.
rsp.
Seven Laws of Noah
I think you have nailed it with F, F thinks we are still under the metallic standards just like Israel in the OT. Matt Franko
Not at ALL! You anger me with your slander but hopefully you will continue to reduce your credibility with the others.
But if we were on a fixed* or pseudo-fixed money supply then by definition purchasing power would be impossible or difficult to create BUT it could be transferred via honest lending.
*Not on your life would I ever advocate a fixed money supply or any other means to artificially limit the creation of money. I just INSIST that money creation be done ethically.
Borrowing by lots of people to buy assets, like houses, will push the market price of those assets up if they are in strictly limited supply, but I don't think that qualifies as 'stealing'. y
What else would you call borrowing from a counterfeiter?
But since the counterfeiting cartel is legal, everyone who supports it is complicit in the theft and in the oppression of the poor too.
nonetheless I think your bible-thumping hellfire-and-brimstone narrative is far too simplistic. y
To be sure, the present money system has encouraged (actually demanded - so as to pay the usury) a lot of growth but has not automatically or justly distributed the wealth created therefrom.
As for the Bible, it is entirely consistent with common stock as private money and with ethical money creation in general.
As for thumping, I refuse to plagiarize the Bible for fear of the Lord. If you reject ethical money creation as a result, that's NOT my problem.
"The bank finance makes those future savings possible.. that's the idea." - y
Bank financing can't create future savings...mathematically impossible.
Future net savings, which are required to extinguish loans, only originate from one source.
"Tell the middle class and lower middle class (one paycheck from being poor) that they have to forego refrigerators and washer-dryers." - Tom
Tom, they can't borrow if they can't afford to make the payments.
Btw consumer credit has not risen at all since 2008....in fact, it has declined by $1T.
F,
all student loans since 2010 are direct govt loans.... the govts fiscal agents bankrupted themselves and the govt had to take this function over...
Also, currently over 90% of all home loans are being done by the now 100% govt owned Fannie/Freddie after they bankrupted themselves back in 2008 ... so virtually ALL home lending is being done directly by the govt as opposed to your "counterfeiting cartel"...
The borrowers in these loan agreements are instead of paying the govts fiscal agents your dreaded 'usury' are now mathematically paying some additional taxes on the principle that they borrow that are based on APR like a loan...
So what you are asserting is that the govt is 'counterfeiting' its own "money"...
You dont even know what the heck is going on in the world...
All lending perhaps sans some of the auto financing (and govt owns GM and Chrysler so any manufacturer financing from those 2 is govt loans) and small amounts of consumer loans is being done by non-govt entities...
How can the govt be 'counterfeiting' its own "money"?
Paul, the point I am making is that many people now finance durables, as well as their vehicles and housing if they don't rent. That all adds to the monthly nut along with insurance, student loans perhaps, etc. A great deal of the consumer economy is income brought forward through debt. A lot of people have little discretionary income left over, and when they need/want something, they put in on the cards.
"Tell the middle class and lower middle class (one paycheck from being poor) that they have to forego refrigerators and washer-dryers." - Tom
Don't forget I advocate universal restitution with new fiat as a MINIMUM requirement of reform , at least until all bank deposits are 100% covered by reserves.
So why borrow when one has cash?
I don't use "steal" or "legal counterfeiters" lightly so restitution is, of course, REQUIRED.
Hey Franko,
Lending by the monetary sovereign, while not counterfeiting, is just a more direct violation of equal protection under the law unless every citizen REGARDLESS of ability to repay receives the same amount under the same terms.
So the government might as well just give away fiat, which I advocate, at least until all deposits are 100% covered by reserves and afterwards as a BIG.
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