The thread where Jaeger explains banking in detail and takes your questions

[Captain Adverse]

The video didn't say that, but you indicated that savings (other than physical cash in the savers posession) was injected back into the economy by lending it back into the economy.

Only in response to this portion of another member's post:

...Saving, by definition, takes money out of the economy.

If you deposit money in a bank account it is a source of funds used to borrow and lend by banks. The only way to keep one's personal resources "out of circulation" is storing it yourself.

 

[imagep]

Only in response to this portion of another member's post:



If you deposit money in a bank account it is a source of funds used to borrow and lend by banks. The only way to keep one's personal resources "out of circulation" is storing it yourself.

Yet no more loans will be generated, just because you had a savings account, thus until you spend that money, it has stopped generating economic activity, so effectively it has disappeared just like if you had buried it in the back yard. However, if you had spent the money, then additional business sales would have been made, and the money would have kept circulating.

I think it's just a matter of how we look at these things, from some point of view, we are both correct.

 

[JohnfrmClevelan]

.

Wrong. Its why you MMT followers have the wheels fall off your bus.

When deposit your check into the bank " i.e. "save your money in a bank account (or as cash) and don't spend it, " there is NOTHING to ":"circulate".. All that deposit is a transaction on a computer. There is nothing to "circulate".

When I spend money, it comes from my checking account. Whether I get cash from an ATM, write a check, or make an electronic transfer, the dollars I spend are subtracted from my account and added to the account of the seller. This is circulation. As opposed to savings, where I just let that money sit in my account. And when I transfer dollars from my account to somebody else's account, commerce happens. When I save dollars, no commerce.

Your wheels have fallen off your bus. On one hand you crow about how there is not finite amount of money (which is true) . that banks can lend irrespective of deposits (which is technically true as I have explained) ...

And then the next minute you are claiming that if I put my money in the bank.. that somehow that has taken money out of "circulation". Sorry sir but you simply can;t see your intellectual disconnect that you are making.

The dollars you save in your account aren't buying ANYTHING. If we all save 15% of our income, then 15% of the national income isn't being spent on production. More dollars can be created and spent, but this takes NEW LOANS or NEW DEFICIT SPENDING.

As far as reserves having no influence on profitability.. that's wrong...

READ WHAT I SAID. I didn't say that the cost of reserves has no effect on profitability. I said it has no influence on the bank's ability to create a loan, and it has no influence on a borrower's ability or likelihood of obtaining a loan. Meaning, your deposit has no influence on new loans.

There is a reason that banks offer interest to attract deposits.. and its not out of the goodness of their hearts. And before you claim that its so they can "collect fees".. Please note that banks decrease fees the more money you deposit in their accounts.

Yes - and I taught you that reason in a previous thread, when you were completely off the rails, yet hanging desperately to another faulty argument.

 

[JohnfrmClevelan]

Right because most economists don't know as much as you.. got it. :roll:

BS.. its because no one feels the need to get bogged down in the minutia. I understand why you do as a follow of MMT.

If not being "bogged down" in minutia means being incorrect, then I'll take being detail-oriented. Beats being wrong.

No it is not.. and no it does not. In fact.. it probably helps stabilize our economy.

People having some savings is a good thing, and it does stabilize their own situation. But on a national level, net saving subtracts from aggregate demand. Can you understand how these two things might both be true at the same time?

What seems to be news to you is the CONSEQUENCES of doing such..

You mean the theoretical consequences. As opposed to the very real consequences of austerity.

Typical MMT bs. When you feet are held to the fire of reality.. "well we understand that there is possible consequences (inflation").. and that last right up until the time someone suggests maybe balancing the government budget and then MMT followers run among talking about the "real pain" that balancing a budget will cause. Etc etc.

Do you understand that there are points on the curve between zero and infinity? In our present situation, federal surpluses, bad. Balanced budgets, bad. Some deficit spending, good. Infinite deficit spending, inflationary. Got it?

Right..:roll: That's like saying that jumping out of an airplane at 1000 feet without a parachute won't kill you because there is no proof that it will. Because no one has done a double blinded study with people jumping out of airplanes without parachutes.

No, that is the FAITH argument right there. If you have faith that you won't die jumping out of that airplane, then you won't die. Alternatively, if you lose faith in your parachute, the laws of nature will suddenly fail you and you will plunge to your death. That's why the faith argument is so frigging stupid and aggravating - it's like arguing about the existence of God.

On the other hand, if there is no evidence that deficits will lead to massive inflation/higher interest rates/etc., even after years of deficits; and there is solid reasoning as to why this is so - then it would be supremely stupid to ignore that and employ a policy of austerity anyway.

Dude.. don't you get it? the REASON that running deficits since Reagan haven't caused massive inflation is BECAUSE our government has taken steps to curb our deficits. BECAUSE our country is seen as CARING about our deficit.. and has taken steps to reign it in.. for example the Balance Budget Act.. (where we got close to a balance budget) and the deficit measures under Obama.

The only time we came close to a balanced budget in the fiat currency era were the Clinton surpluses, and that was followed by a recession. Our government regularly runs deficits that scare the hell out of deficit hawks, with no ill effects. Yours is the "faith" argument all over again. We might as well adopt a policy of praying for the dollar to stay strong.

Yes IF the grocer still takes them exchange. Your argument is predicated on the idea of IF the grocer will except them, and that may not always be the case. Just as its not always been the case in history where fiat currencies were always accepted. Or at least were tremendously devalued. that had dire consequences for those countries and their economy.

Currencies don't lose value because there is too much currency, they lose value because there is not enough to buy. Why do you think most of these events happen right after a large shock to an economy's ability to produce? Wars and political upheaval cause large drops in production. That's when people start paying a ton for a rare loaf of bread or scarce gasoline.

 

[JohnfrmClevelan]

If you deposit money in a bank account it is a source of funds used to borrow and lend by banks. The only way to keep one's personal resources "out of circulation" is storing it yourself.

You came to the right place, this is much of the subject of this thread.

Banks do not loan out your deposits, and they do not loan out of reserves. Banks create loans "from thin air," by expanding their balance sheets.

If you take out a $1000 loan from a bank, here is what happens: the bank marks up your account by $1000, and you execute a promissory note to the bank for $1000 plus interest. You now have $1000 in assets (your account) and $1000+ in liabilities (the loan repayment). The bank now has $1000 more in liabilities (the money in your account) and $1000+ more in assets (your promissory note). M1, which includes money in checking accounts, goes up by $1000; your loan created 1000 new dollars (which are extinguished as you pay off principle). And because of the increase in liabilities, your bank has to come up with $100 in their reserve account at the Fed.

No depositor's account was debited to get the dollars for your loan, nor did those dollars come out of the bank's own account. The dollars are brand new. This is how most of the dollars in existence today were created - from loans.

 

[jaeger19]

What the **** are you talking about? Nobody else can spend your money unless you give it to them, and then it isn't your money anymore.

Income - consumption = saving

Saving, by definition, takes money out of the economy.

Only if the money supply is finite.. and its been established it is not.

your equation is nice by the way. Meaningless.. but you do it so well. Obviously you are very proud of it.

 

[Kushinator]

Only if the money supply is finite.. and its been established it is not.

It has nothing to do with the money supply. You are assuming (without even knowing it) that savings = investment, which is certainly not the case.

your equation is nice by the way. Meaningless.. but you do it so well. Obviously you are very proud of it.

Equation? :lol:

That is an identity. Thanks for playing though!

 

[Kushinator]

W
First of all.. not everything we consume is produced here in the US. in fact a lot of what we consume is NOT.. produced here.. so there could be plenty of things to consume here.. bread, gasoline, internet porn, paper products, clothes.. and a very low income as its not produced in the US and demand for US labor is low.

What gives the dollar its value other than the goods and services one can spend their dollars on?

 

[jaeger19]

Yet no more loans will be generated, just because you had a savings account, thus until you spend that money, it has stopped generating economic activity, so effectively it has disappeared just like if you had buried it in the back yard. However, if you had spent the money, then additional business sales would have been made, and the money would have kept circulating.

I think it's just a matter of how we look at these things, from some point of view, we are both correct.

Two caveats. Banks do get an advantage from attracting deposits and that's in being able to make their reserve accounts balance in a more profitable way. So technically, deposits do help a bank make loans.

Secondly.. and more importantly.. money has not "effectively disappeared".. It could only do that if there was a limited supply of money.. and you have just admitted.

You can't have it both ways... you cannot argue that money is "disappearing" is "taken out of the economy" etc.. when you save.. and then argue that it doesn;t matter when a person saves because the supply of money is not limited.

the only way money is taken out of the economy.. is if my savings decreases someone elses ability to spend. Which it does not.

Listen.. I get why you guys want to keep up this intellectual disconnect. If you were willing to admit it. its because you want to arrive at a certain point where you can conclude on one hand that the government can spend as much as it wants without consequence.
And that people becoming wealthy is bad for the economy because it takes money away from people.

But you position is simply not logical.

 

[jaeger19]

It has nothing to do with the money supply. You are assuming (without even knowing it) that savings = investment, which is certainly not the case.



Equation? :lol:

That is an identity. Thanks for playing though!

Lets see. NO.. I am not assuming that savings = investment

My bad.. nice identity.. though still meaningless.. I see that you are REALLY proud of it.

Good for you.!

Thanks for playing as well.

 

[jaeger19]

What gives the dollar its value other than the goods and services one can spend their dollars on?

Nothing. Your point?

 

[Kushinator]

the only way money is taken out of the economy.. is if my savings decreases someone elses ability to spend. Which it does not.

Now you are just making **** up.

By saving, you decrease your ability to spend. Very basic stuff here; not sure why you continue to struggle. You've not fooled anyone.

 

[Kushinator]

Nothing. Your point?

The value of the dollar is dependent on the goods and services it can purchase.

Please see your post:

Yes IF the grocer still takes them exchange. Your argument is predicated on the idea of IF the grocer will except them, and that may not always be the case. Just as its not always been the case in history where fiat currencies were always accepted. Or at least were tremendously devalued. that had dire consequences for those countries and their economy.

Why wouldn't a grocer accept them?

 

[Kushinator]

Lets see. NO.. I am not assuming that savings = investment

Of course you are! You are assuming that loans are made through savings deposits, which is nonsense. The act of saving, if not induced by an increase of income relative to consumption, will reduce economic activity.

Observe how savings changes during expansions and contractions (shaded bold).

 

[JohnfrmClevelan]

the only way money is taken out of the economy.. is if my savings decreases someone elses ability to spend. Which it does not.

If GDP is $15 trillion, then the national income is $15 trillion. If $2 trillion of that is saved and not spent, then only $13 trillion of income will go to purchase that production. If all of that production is going to get purchased, then it's going to take $2 trillion from somewhere else - new debt, or new deficit spending.

 

[imagep]

Two caveats. Banks do get an advantage from attracting deposits and that's in being able to make their reserve accounts balance in a more profitable way. So technically, deposits do help a bank make loans.

Fair enough.

Secondly.. and more importantly.. money has not "effectively disappeared".. It could only do that if there was a limited supply of money.. and you have just admitted.

If the money supply is unlimited, then why would banks need my deposit to make loans?

You can't have it both ways... you cannot argue that money is "disappearing" is "taken out of the economy" etc.. when you save.. and then argue that it doesn;t matter when a person saves because the supply of money is not limited.

That works both ways. You can't argue that banks make more loans just because someone saves.

the only way money is taken out of the economy.. is if my savings decreases someone elses ability to spend. Which it does not.

We are both "someone", so if we save our money, then we are decreasing our spending, and thus effectively reducing the amount of money circulation.

Listen.. I get why you guys want to keep up this intellectual disconnect. If you were willing to admit it. its because you want to arrive at a certain point where you can conclude on one hand that the government can spend as much as it wants without consequence.

Not exactly, but you aren't totally wrong about my motivation either. I just want people to understand how our monetary system actually works, so that we can make decisions which maximize our economic production and wealth. I've never claimed that the government can spend as much as it wants "without consequence", but the consequence of spending up to the point where our resources are maximized is a good consequence, I really don't understand why anyone wouldn't want our resources, particularly human labor, to be fully utilized.

And that people becoming wealthy is bad for the economy because it takes money away from people.

I certainly want people to become wealthy. That's why I would like to have full employment - so that we can produce more and everyone can retire wealthy after a lifetime of employment and investment and hard work.

 

[SMTA]

What the **** are you talking about? Nobody else can spend your money unless you give it to them, and then it isn't your money anymore.

Income - consumption = saving

Saving, by definition, takes money out of the economy.

This depends upon the amount of reserve cash the bank is required to keep.

 

[SMTA]

Two caveats. Banks do get an advantage from attracting deposits and that's in being able to make their reserve accounts balance in a more profitable way. So technically, deposits do help a bank make loans.

Secondly.. and more importantly.. money has not "effectively disappeared".. It could only do that if there was a limited supply of money.. and you have just admitted.

You can't have it both ways... you cannot argue that money is "disappearing" is "taken out of the economy" etc.. when you save.. and then argue that it doesn;t matter when a person saves because the supply of money is not limited.

the only way money is taken out of the economy.. is if my savings decreases someone elses ability to spend. Which it does not.

Listen.. I get why you guys want to keep up this intellectual disconnect. If you were willing to admit it. its because you want to arrive at a certain point where you can conclude on one hand that the government can spend as much as it wants without consequence.
And that people becoming wealthy is bad for the economy because it takes money away from people.

But you position is simply not logical.

Without deposits banks have no money to loan.

 

[imagep]

Without deposits banks have no money to loan.

Banks don't have to have deposits to loan. They can borrow the money to loan. Or they can acquire money from investors. Or they can make loans and then fund those loans by selling them.

Also, lending results in deposits, as money that is lent almost always ends up in bank accounts, thus when a bank loans money, it's effectively funding that loan by the proceeds of the loan itself (being deposited back into our banking system).

Some people argue that banks can directly and literally create the money that they loan simply by adding numbers to accounts, although I am not convinced that it is that simple.

Any way we look at it, an increase in savings does not result in an increase in loans.

 

[jaeger19]

When I spend money, it comes from my checking account. Whether I get cash from an ATM, write a check, or make an electronic transfer, the dollars I spend are subtracted from my account and added to the account of the seller. This is circulation. As opposed to savings, where I just let that money sit in my account. And when I transfer dollars from my account to somebody else's account, commerce happens. When I save dollars, no commerce.

Okay.. so? the amount of money is not finite.. and thus whether you spend that money or "let it sit" it does not affect anyone elses spending.

The dollars you save in your account aren't buying ANYTHING. If we all save 15% of our income, then 15% of the national income isn't being spent on production. More dollars can be created and spent, but this takes NEW LOANS or NEW DEFICIT SPENDING.

Lets see yes.. So? Serously.. so what? You act like that's a bad thing. As far as takes "creating new loans? Sure.. so?

and no it does not require new deficit spending. that's where taxes come into play.

You seem to think production is the be all end all..

READ WHAT I SAID. I didn't say that the cost of reserves has no effect on profitability. I said it has no influence on the bank's ability to create a loan, and it has no influence on a borrower's ability or likelihood of obtaining a loan. Meaning, your deposit has no influence on new loans.

Except that profitability does have an influence on a banks ability to make a loan.

Yes - and I taught you that reason in a previous thread, when you were completely off the rails, yet hanging desperately to another faulty argument.

That's funny... really FUNNY.. you "taught me"..

Okay sir.. whatever you need to help your ego.

If not being "bogged down" in minutia means being incorrect, then I'll take being detail-oriented. Beats being wrong.

right.. whatever.. if you need to use this as a way to make yourself feel superior to almost every economist who uses the same way to describe it.... go ahead.

People having some savings is a good thing, and it does stabilize their own situation. But on a national level, net saving subtracts from aggregate demand. Can you understand how these two things might both be true at the same time?

Nope.. because net savings does not subtract from aggregate demand. Not in a system with essentially limitless money.

You mean the theoretical consequences. As opposed to the very real consequences of austerity.

Actually no.. the very real consequences. Which history has taught us has happened to economies.

Your like one of those folks that claim that getting a polio vaccination isn;t worth the real risks of autism, because no one gets polio anymore.

Do you understand that there are points on the curve between zero and infinity? In our present situation, federal surpluses, bad. Balanced budgets, bad. Some deficit spending, good. Infinite deficit spending, inflationary. Got it?

'
I do.. unfortunately you don't. right now.. in our present situation... balanced budget good. some deficit spending okay.. current level of deficit spending BAD.

No, that is the FAITH argument right there. If you have faith that you won't die jumping out of that airplane, then you won't die. Alternatively, if you lose faith in your parachute, the laws of nature will suddenly fail you and you will plunge to your death. That's why the faith argument is so frigging stupid and aggravating - it's like arguing about the existence of God.

Well I understand that you don't like the faith argument but when it comes to money.. it is all about faith. Money has no intrinsic value so the only value it has is the faith that you and the person that will accept it has in it.

 

[jaeger19]

The value of the dollar is dependent on the goods and services it can purchase.

Please see your post:



Why wouldn't a grocer accept them?

Because he doesn't have faith in their value. Instead.. he would prefer you paid in some other currency, not dollars

 

[jaeger19]

Now you are just making **** up.

By saving, you decrease your ability to spend. Very basic stuff here; not sure why you continue to struggle. You've not fooled anyone.

How can I decrease my ability to spend? So if I have 100,000 in the bank.. I have less ABILITY to spend money than you that has zero in the bank?

Yeah.. its not me that's struggling here.

wow.. :shock:

 

[jaeger19]

Of course you are! You are assuming that loans are made through savings deposits, which is nonsense. The act of saving, if not induced by an increase of income relative to consumption, will reduce economic activity.

Observe how savings changes during expansions and contractions (shaded bold).

Of course I am not.

And yes.. observe how the personal savings change up and down.. during expansions. Notice how many peaks there are in savings with NO contraction.

 

[imagep]

How can I decrease my ability to spend? So if I have 100,000 in the bank.. I have less ABILITY to spend money than you that has zero in the bank?

Yeah.. its not me that's struggling here.

wow.. :shock:

If you have $100k in the bank, then there has been $100k less spending done in our economy than would have been if you had spent that $100k

Money in itself isn't wealth, it's just points we use for accounting purposes. Money sitting in an account or in a cookie jar isn't contributing to our economy. When it comes to money, the only money that really counts in our economy is money that is circulating. The federal reserve could create ten trillion dollars today, and it wouldn't make a bit of difference in our economy, unless the fed somehow distributed that money into the hands of people who spend it (even if that expenditure is to increase in capital goods).

 

[JohnfrmClevelan]

Okay.. so? the amount of money is not finite.. and thus whether you spend that money or "let it sit" it does not affect anyone elses spending.

Jaeger, your whole "infinite amount of money" angle is just dumb. There is a big difference between already having money to spend and being able to borrow in order to spend.

Lets see yes.. So? Serously.. so what? You act like that's a bad thing. As far as takes "creating new loans? Sure.. so?

So, more private sector debt. More consumer debt. Your savings requires some other party to be in debt.

and no it does not require new deficit spending. that's where taxes come into play.

Taxes also reduce one's ability to spend. You really haven't thought this through, have you?

You seem to think production is the be all end all..

Without production, what kind of economy would we have?

Except that profitability does have an influence on a banks ability to make a loan.

No, it doesn't. It has an influence on the amount of money a bank makes from a loan, that's it. This line of argument is a direct consequence of you stepping in it when you claimed that banks loaned out deposits. Then when I called you on that, you switched course (without admitting that you were wrong, of course) and said that you were talking about cheaper reserves all along (total b.s.). But you still missed on the fact that more profitable =/= more possible.

That's funny... really FUNNY.. you "taught me"..

Okay sir.. whatever you need to help your ego.

You can go back and check our old threads if you like. The fact is that you are far more correct now than you were then - which is a good thing. And you have somehow adopted a lot of my arguments since then. But I think Ganesh made an astute observation when he wrote that you are desperately afraid of being wrong. You would rather win a debate than be correct. And when you hang onto bad arguments, then morph your views along the way, all while claiming that was what you meant all along, that's just intellectual dishonesty.

Nope.. because net savings does not subtract from aggregate demand. Not in a system with essentially limitless money.

This is a losing argument, Jaeger, and sooner or later you are going to have to abandon it. Production = Income is a very basic tenet.

Actually no.. the very real consequences. Which history has taught us has happened to economies.

Then give us a few examples of hyperinflation that wasn't preceded by a drop in production.

I do.. unfortunately you don't. right now.. in our present situation... balanced budget good. some deficit spending okay.. current level of deficit spending BAD.

If our current level of deficit spending is BAD, then you should have no problem pointing to some economic problems attributable to that deficit spending.

Well I understand that you don't like the faith argument but when it comes to money.. it is all about faith. Money has no intrinsic value so the only value it has is the faith that you and the person that will accept it has in it.

...call it what you will, value is based on production and what you can buy with your money. Just like when people don't understand the science behind natural phenomena, they attribute those things to God. You don't understand why money works, so you attribute it to "faith."