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Neilr9

Can The Banks Run Out Of Money To Lend ?

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Hi,

I'm no expert in economics, so forgive me if this is a stupid question. But is it actually possible for the banks to run out of money to lend for all these mortgages ? Surely if prices go up an up, eventually there will not be enough money to lend. Or, do they have some limitless supply ? At what point will the banks stop lending because they have run out of money ? Would someone care to expand on this.

thanks.

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Hi,

I'm no expert in economics, so forgive me if this is a stupid question. But is it actually possible for the banks to run out of money to lend for all these mortgages ? Surely if prices go up an up, eventually there will not be enough money to lend. Or, do they have some limitless supply ? At what point will the banks stop lending because they have run out of money ? Would someone care to expand on this.

thanks.

No - the banks can never run out of the money to lend - when they lend it to you at 7% they get it from the central bank at 4.75%. The central bank simply then prints it, and the amount of money in the economy goes up.

They do not target the supply of money- they target the 'inflation' measure.

For instance, so much lending has occured in the past year that the central bank has printed £1 for every £10 you have saved or earnt in the supply of money in the economy. From september this accelerated to £1.20 per £10 of your life savings.

Now all this money supply growth would normally be reflected in prices - However because there are so many millions and millions of new people in the UK this prevents wages rising like house prices or stock prices as the price of labour is cheapened.

Since the major cost of any product is the labour cost (so people can earn enough to have a house, family) reducing wages by printing masses of money at a very low interest rate, while increasing the supply of labour in the economy via mass immigration means that prices of products do not move, even as raw material and energy costs rise. It also means the equity of society goes to owners of land and capital (though owners of capital may find they are no better off in the long run).

All of this debt really represents the growth of the money stock in the economy. Thats because all money is created as loans - debt.

So we arrive at a situation in which Labour/workers find they cannot afford to buy homes, or provide for themselves beyond subsistance and trinkets, while insane levels of wealth accrue to property owners and company profits grow with the money supply. In a very real sense, when 10% of your earnings are printed you are working for the propertied classes as it goes straight to them.

Without the ability to control the market price of your labour or skillset, because of mass immigration, you have no bargaining power over wages.

As the money supply grows I expect this to eventaully show in modest wage rises, but I now believe that houseprices will start to rocket upwards again as long as interest rates indicate lending and the money supply is rising.

By 2008 There will be a population register, the worlds most advanced police state and ID cards to enforce public sector and other inflation proof liabilties. Liberty and freedoms are disappearing down the crapper.

Edited by brainclamp

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No - the banks can never run out of the money to lend - when they lend it to you at 7% they get it from the central bank at 4.75%. The central bank simply then prints it, and the amount of money in the economy goes up.

...

Very well put Brainclamp. The only thing i'm still debating in my mind is where will all this end up?

I suppose the only reason this works, is because most people are homeowners and don't see house price inflation as 'inflation'. The goods they buy are still cheap (in comparison). Also, homeowners think they are rich so welcome price rises.

But when will all this end? Will it end in a credit crunch? Where people can't afford to take on new debt, hence live within their means, hence don't spend in the economy, hence the economy goes tits up...

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it could all end in the loss of true democracy and personal freedom.

they alreay present freedom of political choice as the selection of 3 people from the same public schools, singing the same song sheet.

i cant think of who to vote for. they all stink.

the rise of extreme political partys is nearing.

Edited by right_freds_dead

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Guest Charlie The Tramp
No - the banks can never run out of the money to lend - when they lend it to you at 7% they get it from the central bank at 4.75%. The central bank simply then prints it, and the amount of money in the economy goes up.

Well I got my wrists slapped. :D

FreeTrader: Charlie, I think you need to move away from the idea that banks borrow from the central bank at a base rate and then loan out at rates above this to their own borrowers.

The base rates set by central banks such as the US fed funds rate and primary credit rate (they tend to call the latter the ‘discount rate’, whereas in reality there are several discount rates) are effectively punitive short term rates for borrowing inter-bank, or from the central bank (usually overnight).

These base rates, because of their punitive nature, basically determine short term money market rates, and because of normal risk/reward considerations, will tend to influence longer term rates as well.

Banks don’t borrow from the central bank to lend to customers. They don’t need to. The loans they can make are determined by their reserve holdings with the central bank. Generally the central bank will influence the level of these reserves with open market operations.

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Printing money can work against holders of wealth. After the First World War the German government annihilated its war debt by hyperinflation induced by printing masses of money. Those with the most cash or holders of bonds were left with nothing. Those with tangible assets or commodities/precious metals didn't lose their wealth. Inflation isn't really in anyone's interest, not even the feudal-commercial uppercrust. If you fleece the Mob, they get restless..... and elect unspeakable politicians like Adolf Hitler.

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The key is the inflation measure. It is a device re-weighted and changed at will to basically dupe the public's inflation expectations.

If a ordinary worker understood what was occuring with his wages and savings he would instantly try to spend as much as he could reasonably do on goods before the money supply eroded the real value of his cash which would lead to accelerating inflation like we see now in NZ.

This is why the management of inflation expectations is so important.

If you understand savings as deferred consumption, you would start now to bulk buy tins of food and clothes. However, if everyone did this, there would be inflation, with people getting more paniced.

This happened in America during the 1970s.

I did this last year with a few and I have managed to beat my mergre savings account by 10% on retail prices on goods I would otherwise consume this year anyway - not a bad 'investment' for a bit of storage space!

In my thread on New Zealand houseprice inflation is now 14% while CPI is at 3.4%, yet dispite many rate rises with more to come, houseprices are STILL accelerating.

If you see the video in that thread you will understand the periperal parts of the western world are starting to buckle and warp under the weight of immense liquidity which so far has not shown up in inflation.

Unlike the 1970s, or even the 89 bust, when the fabric of society hadn't been changed, and printing money instantly resulted in workers recieving thier share of production, and inflation in prices - by lowering real wages via mass immigiration and making it poltically incorrect to challenge it, there is now no limit on reducing the cost of Labour.

Any firm has to bid for land, labour and capital from its economic activity. With mass immigration the cost of labour/skills drops, while sales revenue and the costs of the other factors rise. An ordinary worker is hit with a double whammy. That is why houseprices will continue to rise steeply with mass immigration.

As far as the poltical elite are concerned the projected population of a billion muslims by 2030 on Europes borders is a fantastic 'growth' opportunity via mass immigration and cheap labour.

The introduction of 80million Turks all at once in the EU labour market against the wishes of the European electorate is yet more immigration to drop wages further so they can carry on printing. There never has to be inflation in prices from pesky workers demanding thier share of production! Any objections are of course racist.

The fact remains that every pound note you earn represents your share of the UK. When they print 12% more of the pound notes you hold while your wage (share of production) is flat (dropping in real terms by 12%) thats how much you can expect to see houseprices rise by.

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The fact remains that every pound note you earn represents your share of the UK. When they print 12% more of the pound notes you hold while your wage (share of production) is flat (dropping in real terms by 12%) thats how much you can expect to see houseprices rise by.

So, if the increase in money supply is 12% (m4 lending), and CPI (or even RPI) is 3% (ish) money erosion is 9%. So you would expect assets to increase by 9%? I agree that this is where most of the cash has gone, but prices only rose by 3% in the last 12months.

So the extra money went into the broader economy? As it takes time for the money to work its way through the system, you would expect CPI/RPI inflation to increase?

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So, if the increase in money supply is 12% (m4 lending), and CPI (or even RPI) is 3% (ish) money erosion is 9%. So you would expect assets to increase by 9%? I agree that this is where most of the cash has gone, but prices only rose by 3% in the last 12months.

So the extra money went into the broader economy? As it takes time for the money to work its way through the system, you would expect CPI/RPI inflation to increase?

Thats because they were overvalued. I expect them to start to take off again - as the money supply is indicating.

Will CPI increase? not with mass immigration - s profits rise with the extra money printed, (and fat cat directors pay rises also), the price of labour stays flat as there is more of it.

This means that for the firm - the total price of an item - although energy and other costs have risen, the main cost - the price of labour has dropped. Ordinary people do not see this they just see thier nieghbourhood changing and houseprices climbing ever higher.

With the UK population expanding at 8% every 5 years, you can never get a fair share of production for your labour - thats the piont of a union - and eventually your wages will keep dropping in relation to house prices and any form of capital.

I am optimistic that the quality of the labour/bodies imported is now so low - certainly around me very large ghettos are forming - (i.e. cannot speak the langauge cannot read/write and keep together) that the liabilties accrued may lead to more of a fiscal deficit and taxes, thus raising cost-push inflation. However that burden mainly falls on the ordinary worker through his council taxes, so I doubt it will greatly affect house prices as an investment and thats the key.

Edited by brainclamp

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Hi,

I'm no expert in economics, so forgive me if this is a stupid question. But is it actually possible for the banks to run out of money to lend for all these mortgages ? Surely if prices go up an up, eventually there will not be enough money to lend. Or, do they have some limitless supply ? At what point will the banks stop lending because they have run out of money ? Would someone care to expand on this.

thanks.

Banks do not 'lend' money is the sense that an army of old ladies' savings accounts are temporarily emptied to allow someone to spend 200k on a two bed flat. The money is created by the bank, who only needs a fraction of it 'on reserve' to 'lend' the money.

When the newly created money hits the system it winds up as deposits in other accounts allowing the banks to create yet more debt money.

Thus nearly every quid in circulation is balanced by an equivalent debt. The only money spent into circulation, rather than lent, are the notes and coins in our pockets - which the banks pay for from the government using their 'number money'.

Seeing as commerical bank create thier own money out of nothing and it is only our slavery to their loans via our labour and economic endeavours that make this number-money tangible, it essentially comes from thin air and can be made in huge quantities. Of course, if they inflate the money supply at a terrifiying rate by lending vasts sums to anyone with a pulse the system is open to seizing up, or outright collapse, as businesses, governments and individuals become unable to service the debt. Then it's recession time when the money supply contracts.

See here for more info:

http://www.lowbudgetlife.com/content/view/44/2/

Edited by CrashedOutAndBurned

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Hi,

I'm no expert in economics, so forgive me if this is a stupid question. But is it actually possible for the banks to run out of money to lend for all these mortgages ? Surely if prices go up an up, eventually there will not be enough money to lend.

The banks already lend more than there was previously in existence thanks to fractional reserve banking.

If things go really awry then the central bank begins to monetize debt, so you never really 'run out' of money, quite the opposite, if things go wrong then there is more money in existence to such a degree that it becomes worthless.

Edited by BuyingBear

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Hi,

I'm no expert in economics, so forgive me if this is a stupid question. But is it actually possible for the banks to run out of money to lend for all these mortgages ? Surely if prices go up an up, eventually there will not be enough money to lend. Or, do they have some limitless supply ? At what point will the banks stop lending because they have run out of money ? Would someone care to expand on this.

thanks.

Yes, banks can, run out of money. I wont go into all the details of bank regulation, Tier 1 capital and credit ratings, but banks need to have a certain amount of equity to back any loan. The amount of equity depends upon the type of loan, but typically a bank needs approx 6% of equity for the average loan. Equity is a major limiting factor to the value of loans a bank can make.

Very little bank funding come from central banks. Banks have to manage their liabilities and assets carefully with a mix of deposits, interbank, securitisations and long-term debt to match the duration and structure of assets and liabilities. Overnight funding from a central bank is normally used to balance the books short term. If banks are unable to secure suitable funding such as deposits at appropriate rates they cannot make loans.

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Yes, banks can, run out of money. I wont go into all the details of bank regulation, Tier 1 capital and credit ratings, but banks need to have a certain amount of equity to back any loan. The amount of equity depends upon the type of loan, but typically a bank needs approx 6% of equity for the average loan. Equity is a major limiting factor to the value of loans a bank can make.

Very little bank funding come from central banks. Banks have to manage their liabilities and assets carefully with a mix of deposits, interbank, securitisations and long-term debt to match the duration and structure of assets and liabilities. Overnight funding from a central bank is normally used to balance the books short term. If banks are unable to secure suitable funding such as deposits at appropriate rates they cannot make loans.

Isn't this why abbey almost went under a couple of years ago and had to be bailed out by the spanish santa bank?

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Indivdual banks can run out of thier reserves - and carry bad loans and be unable to make new loans etc....

But the fact remains that the price of money is set by the central bank, it is the source of all the loans made by banks - even if the bank loosens the reserve requirements instead of the interest rate, the new loans made would come from the central bank. No the banking system can never run out of money.

However, it can raise interest rates to stop the demand for loans.

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Indivdual banks can run out of thier reserves - and carry bad loans and be unable to make new loans etc....

But the fact remains that the price of money is set by the central bank, it is the source of all the loans made by banks - even if the bank loosens the reserve requirements instead of the interest rate, the new loans made would come from the central bank. No the banking system can never run out of money.

However, it can raise interest rates to stop the demand for loans.

The overnight cost of money is effectively set by the central bank. The rest of the curve is set by the market and the further out you go the less the influence of the central bank. Thats why you had Greenspan trying to talk up bond yields, because despite increasing short rates the long end of the curve was still falling.

Yes, in extreme circumstances, the central bank will usually provide short-term liquidity to a distressed bank, but no, it will not finance loan growth. So, in practical terms, the loan growth of banks is constrained by 1) equity and 2) funding. They do not have a limitless supply of funds to lend. When banks run short of equity and funding they stop lending. In a laymans term this is the equivalent of "running out of money".

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The overnight cost of money is effectively set by the central bank. The rest of the curve is set by the market and the further out you go the less the influence of the central bank. Thats why you had Greenspan trying to talk up bond yields, because despite increasing short rates the long end of the curve was still falling.

Yes, in extreme circumstances, the central bank will usually provide short-term liquidity to a distressed bank, but no, it will not finance loan growth. So, in practical terms, the loan growth of banks is constrained by 1) equity and 2) funding. They do not have a limitless supply of funds to lend. When banks run short of equity and funding they stop lending. In a laymans term this is the equivalent of "running out of money".

In simple and truthful terms all money printed comes from the central bank as a demand for loans at the determined interest rate. The long end is not independant of the central bank - only the currency is.

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this happens in monopoly all the time. the bank runs out of money.

all the BoE do is go to their mums porcelain chicken where she keeps her sowing stuff and get out the pins.

use a pin temporary as a £100 note. when a few players start getting bankrupted exchange the pins back into yellow £100 notes. easy.

remember to put the pins back though, as if your walking about in bare feet. that would not be good.

plus your mum will batter you will her hangbag if you lose all her pins again.

plus use a cotton bobbin as £500 notes.

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this happens in monopoly all the time. the bank runs out of money.

all the BoE do is go to their mums porcelain chicken where she keeps her sowing stuff and get out the pins.

use a pin temporary as a £100 note. when a few players start getting bankrupted exchange the pins back into yellow £100 notes. easy.

remember to put the pins back though, as if your walking about in bare feet. that would not be good.

plus your mum will batter you will her hangbag if you lose all her pins again.

plus use a cotton bobbin as £500 notes.

How much do the 'Fairy Hammocks' trade for? :blink:

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nineteen.

na na na nineteen.

in south east england a HPC military spokesman said today over 700 ememy troops were killed last week in that sensitive border area. throughout all of southourn england the enemy lost a total of 2596 soldiers.

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Guest Bart of Darkness

its tequila....

laced with elderflower.

Ah, the perfect nightcap.

And on that note, I'll sign off for the night.

Let's see what the boys at the MPC have in store for us today/tomorrow.

Night all.

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and when the bart of darkness went tosleep. all his friends went to sleep.

the mice on the property programs. gabriel the toad. and professor shakerbaby, a carved wooden bookend.

good night said bart of darkness.

goodnight they said.

goodnight fred.

the most magnificent.

the most glorious.

the most industrius.

saggy old cloth cat in the whole wide world.

a bit loose at the seams,

but dunraomin loved him.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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