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There are a few posters here who claim that banks don't lend out money, they lend out bank credit. Other people say that they don't lend out anything, just a promise that they would if asked. Some people even say nothing is happening at all except fraud.

Do any people who believe any of the above (or similar), have any actual evidence to support their claims? Perhaps it has been posted before and I've missed it. In that case, can people point me to the previous posts?

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You want to buy a car. You go to HSBC and say, "Lend me £10,000". They say yes and tap tap on the keyboard and you've got £10,000 in your account. Cost to HSBC so far - Nil.

You go to a dealer and pick out a car, haggle the price down to £10,000 and say, "How should I pay?" Dealer says stick your debit card in the machine and we'll transfer the money to our account. You notice the dealer also banks at HSBC. You drive away in your new car. Financial situation at this point: Dealer has £10,000 in its HSBC account earning 1%. You are paying 8% on your £10,000 debt. Cost to HSBC so far - Nil.

Eventually dealer decides to spend the money to pay rent or staff wages or buy new stock. The £10,000 gets transfered to, say, Barclays. HSBC says to Barclays, "Sorry, we don't actually have £10,000 to give - we just invented it out of nothing." Barclays replies, "No probs old chap, we'll notionally lend the money back to you at the LIBOR rate of 4%." Financial situation is now: You are paying HSBC 8%. HSBC is paying Barclays 4%. Barclays are paying their depositor 1%. So HSBC is earning 4% and Barclays 3% on money that HSBC invented out of nothing.

This situation continues for a long time.

Then HSBC expects you to give them £10,000 to pay off the loan!

Edited by Nationalist

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You want to buy a car. You go to HSBC and say, "Lend me �10,000". They say yes and tap tap on the keyboard and you've got �10,000 in your account. Cost to HSBC so far - Nil.

You go to a dealer and pick out a car, haggle the price down to �10,000 and say, "How should I pay?" Dealer says stick your debit card in the machine and we'll transfer the money to our account. You notice the dealer also banks at HSBC. You drive away in your new car. Financial situation at this point: Dealer has �10,000 in its HSBC account earning 1%. You are paying 8% on your �10,000 debt. Cost to HSBC so far - Nil.

Eventually dealer decides to spend the money to pay rent or staff wages or buy new stock. The �10,000 gets transfered to, say, Barclays. HSBC says to Barclays, "Sorry, we don't actually have �10,000 to give - we just invented it out of nothing." Barclays replied, "No probs old chap, we'll notionally lend the money back to you at the LIBOR rate of 4%." Financial situation is now: You are paying HSBC 8%. HSBC is paying Barclays 4%. Barclays are paying their depositor 1%. So HSBC is earning 4% and Barclays 3% on money that HSBC invented out of nothing.

This situation continues for a long time.

Then HSBC expects you to give them �10,000 to pay off the loan!

all fine until Barclays no longer wishes to lend to HSBC.....credit crunched.

course, the dealer may have banked with Barclays all along, so at that point HSBC either settled the debt with BoE money or borrowed from the market, either way, HSBC committed to paying BoE money to barclays.

As most British banks are in need of borrowing at all times, then this situation was very serious for them....hence the need for bailouts.

The upshot is, that with all credit transactions, BoE money is required to settle the debt.

Edited by Bloo Loo

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You want to buy a car. You go to HSBC and say, "Lend me �10,000". They say yes and tap tap on the keyboard and you've got �10,000 in your account. Cost to HSBC so far - Nil.

You go to a dealer and pick out a car, haggle the price down to �10,000 and say, "How should I pay?" Dealer says stick your debit card in the machine and we'll transfer the money to our account. You notice the dealer also banks at HSBC. You drive away in your new car. Financial situation at this point: Dealer has �10,000 in its HSBC account earning 1%. You are paying 8% on your �10,000 debt. Cost to HSBC so far - Nil.

Eventually dealer decides to spend the money to pay rent or staff wages or buy new stock. The �10,000 gets transfered to, say, Barclays. HSBC says to Barclays, "Sorry, we don't actually have �10,000 to give - we just invented it out of nothing." Barclays replies, "No probs old chap, we'll notionally lend the money back to you at the LIBOR rate of 4%." Financial situation is now: You are paying HSBC 8%. HSBC is paying Barclays 4%. Barclays are paying their depositor 1%. So HSBC is earning 4% and Barclays 3% on money that HSBC invented out of nothing.

This situation continues for a long time.

Then HSBC expects you to give them �10,000 to pay off the loan!

Best and simplest explanation I have seen so far. Thanks

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course, the dealer may have banked with Barclays all along, so at that point HSBC either settled the debt with BoE money or borrowed from the market, either way, HSBC committed to paying BoE money to barclays.

As most British banks are in need of borrowing at all times, then this situation was very serious for them....hence the need for bailouts.

The upshot is, that with all credit transactions, BoE money is required to settle the debt.

Not true. Inter-bank lending solves all problems. The BoE is not required. And the larger the bank the more chance the money will just move from account to account never leaving the bank. Also note that for every wedge leaving HSBC to go to Barclays another will be moving in the opposite direction. They largely cancel out, although the bigger banks have the advantage.

The credit crunch stopped the lending and gummed up the system. Then the BoE bail out was needed.

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Not true. Inter-bank lending solves all problems. The BoE is not required. And the larger the bank the more chance the money will just move from account to account never leaving the bank. Also note that for every wedge leaving HSBC to go to Barclays another will be moving in the opposite direction. They largely cancel out, although the bigger banks have the advantage.

The credit crunch stopped the lending and gummed up the system. Then the BoE bail out was needed.

I see your point, but that only works, as we have seen, while the credit markets are in free flow.

as they dried, the BoE had to step in with real funds to shore up lack of real funds for commitments. couple that with balance sheet losses, we can see why the banks are only lending to safe prospects with their own capital at risk.

i think we have an accord.

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There is no such thing as real money. It doesn't exist.

Get a fiver or tenner out of your pocket and read it. It will say:

"I promise to pay the bearer on demand..."

That fiver or tenner in your hand is just a credit note.

Edited by 888

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There is no such thing as real money. It doesn't exist.

Get a fiver or tenner out of your pocket and read it. It will say:

"I promise to pay the bearer on demand..."

That fiver or tenner in your hand is just a credit note.

I think you'll find that if you go to the BoE and hand over a tenner and demand payment according to the promise they just give you the tenner back. :lol:

Strictly speaking they should give you ten pounds of sterling silver. That was the original means of "pound".

But they won't.

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you can find everything you need on the bank of england website. search for monetary financial institutions.

The existence of M0 and M4, and the fact that these numbers are vastly different is plenty of evidence that the banking system creates money

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There is no such thing as real money. It doesn't exist.

Get a fiver or tenner out of your pocket and read it. It will say:

"I promise to pay the bearer on demand..."

That fiver or tenner in your hand is just a credit note.

FIAT is real, you use it to settle a debt.

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Not true. Inter-bank lending solves all problems. The BoE is not required. And the larger the bank the more chance the money will just move from account to account never leaving the bank. Also note that for every wedge leaving HSBC to go to Barclays another will be moving in the opposite direction. They largely cancel out, although the bigger banks have the advantage.

The credit crunch stopped the lending and gummed up the system. Then the BoE bail out was needed.

Yes it is true, the BoE is the LENDER of last resort. Call it what you want i.e. 'Bail out', however, the BoE has still LENT the money. If the BoE were not a LENDER then the banks would have simply gone bust...but as we know they did indeed have an alternative to Inter-bank lending.

Love the way you boldly posted 'Inter-bank lending solves all problems' because on this occasion it was a lack of that caused the problems. The other bollo you stated was 'The BoE is not required'??? Priceless! Where have you been since last September?

Edited by Chest Rockwell

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The �10,000 gets transfered to, say, Barclays. HSBC says to Barclays, "Sorry, we don't actually have �10,000 to give - we just invented it out of nothing." Barclays replies, "No probs old chap, we'll notionally lend the money back to you at the LIBOR rate of 4%." Financial situation is now: You are paying HSBC 8%. HSBC is paying Barclays 4%. Barclays are paying their depositor 1%. So HSBC is earning 4% and Barclays 3% on money that HSBC invented out of nothing.

Then HSBC, Barclays, RBS, HBOS, Morgan Stanley, Citi, BoA ... [ad infinitum] all write and sell Credit Default Swaps on the transaction, pretending that the original asset (debt) was 1,000,000 and make a lot of moolah from chumps (each other) buying crap they don't understand.

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Then HSBC, Barclays, RBS, HBOS, Morgan Stanley, Citi, BoA ... [ad infinitum] all write and sell Credit Default Swaps on the transaction, pretending that the original asset (debt) was 1,000,000 and make a lot of moolah from chumps (each other) buying crap they don't understand.

dont forget selling the loan to your "conduit" and getting a triple A rating for it.

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FIAT is real, you use it to settle a debt.

I tried to use Fiat (well, Alfa Romeo but same difference) to get around the country. Was very good at it when it worked, most of the time it didn't :-)

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So, second page and no evidence yet.

Does anyone have any, or is it all just assertions?

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Let me help y'all out.

Chefdave started an excellent stealth thread in the off topic forum to discuss a comment by Paul Tucker of the MPC. That comment was:

Subject only but crucially to confidence in their soundness, banks extend credit by simply increasing the borrowing customer’s current account, which can be paid away to wherever the borrower wants by the bank ‘writing a cheque on itself’. That is, banks extend credit by creating money...

I would say that writing a cheque is making a promise to pay, not actually making payment. But that does not make it true! Now, several of us have mulled this over, and I wrote to the BoE to ask them if the above is correct. Their reply did not answer the question, and I remain unconvinced either way. Now, has anyone got any actual evidence to corroborate the apparent assertion of the MPC member above?

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So, second page and no evidence yet.

Does anyone have any, or is it all just assertions?

the way it works is the evidence....or are you looking for a physical reality?

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the way it works is the evidence....or are you looking for a physical reality?

I don't work for a bank - I don't know what they do.

I'm looking for some evidence that when someone buys something with a "loan", no money changes hands, only promises.

I'm not saying I think this is or is not the case, just that I want to know.

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So, second page and no evidence yet.

Does anyone have any, or is it all just assertions?

Errrr....didn't you see the post above from dazednconfused? :

you can find everything you need on the bank of england website. search for monetary financial institutions.

The existence of M0 and M4, and the fact that these numbers are vastly different is plenty of evidence that the banking system creates money

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Errrr....didn't you see the post above from dazednconfused? :

I did not ask whether the banking system creates money. Promising money is not the same as creating money, and it is the former that this thread is interested in. Plus, I've trawled the BoE website already. Witness my comment on chefdave's thread. I was kind of hoping that those who were sure that banks dont use money to settle debt obligations would have done the same and could provide some links to confirm their assertions.

Indeed, I might have expected such evidence to be dumped on this thread in a curt and dismissive manner. In fact, I'm the only person to provide any actual evidence so far.

edit: Hi Injin...

Edited by Timm

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I did not ask whether the banking system creates money. Promising money is not the same as creating money, and it is the former that this thread is interested in. Plus, I've trawled the BoE website already. Witness my comment on chefdave's thread. I was kind of hoping that those who were sure that banks dont use money to settle debt obligations would have done the same and could provide some links to confirm their assertions.

Indeed, I might have expected such evidence to be dumped on this thread in a curt and dismissive manner. In fact, I'm the only person to provide any actual evidence so far.

edit: Hi Injin...

Hi. :)

It's hard to prove a negative.

I did it by asking for proof there was any money attached to my loan. When there wasn;t I ******ed off out of the system, never to return.

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I don't work for a bank - I don't know what they do.

I'm looking for some evidence that when someone buys something with a "loan", no money changes hands, only promises.

I'm not saying I think this is or is not the case, just that I want to know.

money will only change hands when the IOUs need to be settled. Bank credit cant settle a debt, but cash, or narrow money, can.

narrow money could be a record of cash stored in a banks current account.

when you borrow money, usually your account at the bank is debited with the loan amount. you could be given cash at that time as an alternative.

if you have the cash, clearly, the bank has given you the loan and has settled it from its current account. no question.

If you however pay a shop for goods writing a cheque, using a debit card or some other IOU, then its only when the bank is presented with the cheque, the debit or the IOU request, that cash or narrow money will change hands....to settle the new commitment you made.

course, if the shop has an account at your bank, then no cash is needed by the bank, all that happens is your account is credited and the shops debited. fortunate for the bank.

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Hi. :)

It's hard to prove a negative.

I did it by asking for proof there was any money attached to my loan. When there wasn;t I ******ed off out of the system, never to return.

*big friendly smile*

I pretty much accept that you have enough proof to satisfy yourself.

Thing is, I can't see that proof, just your assertion of it.

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