I threw together a quick post on tax havens and the Brexit deal on Christmas Eve, noting that the UK's tax havens were likely to like it.
That post was the best read one on this blog during December. There were more than 12,000 reads on Christmas Eve and 10,000 on Christmas Day - when precedent suggests around 1,000 or so total reads are likely.
The news spread fast to those who wanted to know that there was an opportunity for abuse coming up, and in they flocked.
I find that very sad.
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Any new taxhavens will have been introduced to benefit those who created the deal. the Uk government is corrupt
Richard, I hope you don’t mind me moving my “mystery of the disappearing bank loan” to your front page, so that I can find it. I hope you enjoyed a good Christmas with your family and feel well rested. Life looks easier for UK businesses now that we have an EU trade deal.
Your last response to me, “nothing breaches that,” has – I’m afraid – really confused me. I am not suggesting that you are wrong, merely that I cannot understand how the accounts could signed off as “true and fair,” if it’s not a debit entry. I am, quite frankly, at a loss to think of what you could write in the debit column given that no debit has taken place, and I cannot see how it will balance the credit entry in the customer’s loan account. I have been recalling double entry from my memory and checking on the internet and must say that the “bank created money” for the loan looks remarkably like a gift to the bank – which it is, from us the people – and to my mind it should be entered into the cash book, then, possibly, transferred to the loan account and only then treated as the textbooks suggest. Perhaps you would be kind enough as to explain why banks behave so differently and – from my perspective – seem to be able to bend the rules to their needs.
I have wholly lost you argument
Please spell it out again
And please remember there is no such thing as money – only debt
And there is no debt left when a loan is repaid
I’m afraid that I do not agree with your second comment, I genuinely don’t ever think that lexical semantics help. As you have demonstrated, this debate is hard enough to comprehend without resorting to similes. “Debt” is most usually defined in money terms, but not necessarily. My point was that your video and the textbooks say, “debit bank loan account with value of the loan.” But no debit from the bank’s loan account has taken place, the loan was created from nothing. The textbooks seem to be working on the principles that were in place when we had “fractional-reserve banking.” If, therefore, no debit has taken place, how can you enter one in the accounts? I then suggested that the created money was a gift from the state and should be entered in the cashbook.
I don’t want to labour the point about semantics, but the Bank of England has this to say on the matter:
“When a bank makes a loan to one of its customers it simply credits the customer’s account with a higher deposit balance. At that instant, new money is created.”
Bank of England QB, Q1, 2014.
To clarify my last post, perhaps it will help to use a hypothetical transaction:
Bank A lends Acme plc £1 million.
Acme plc repays Bank A the full amount plus interest over 5 years.
At the end of the 5 years, £1 million plus interest has flowed into Bank A’s reserves giving the bank a gross margin on the loan of £1 million plus interest because the bank did not use its own money to fund the loan but rather created it from nothing.
If I am right, then UK bank money creation is resulting in the entire new bank created money supply flowing circularly into the banks’ reserves with no residual liability. And that is enough to solve inequality/poverty in the UK.
Patrick
There is no such thing as fractional reserve banking
And the double entry in the bank is:
Dr Customer loan account
Cr Customer current account
And yes, charging interest on money made in this way is exploitative
It is why the banks have grown as they have – once they were much less significant in society and the FTSE than now
Welcome to the rentier economy – the excess you identify is, of course, skimmed off the top of productive activity
But I am still not sure what your double entry problem is
Well, it’s the ‘Michael Lewis Effect’ in action isn’t it?
When he wrote ‘Liar’s Poker’ he was struck by how a book that was meant to lift the lid off the immorality of Wall Street basically become an inspiration for many to make money in high finance and get a job there. It’s the twisted morality of our times – using the accounts of whistle blowers and honest exposition by heterodox to do the wrong thing – not the right thing.
Truth if ever there was that maybe the Reaganite/Thatcherite ideology HAS been successful in releasing ‘The Beast’ in society and introducing the fetishization of money – it’s worship as a God, as a deity by many.
As many other valid professions begin to shrink in their remuneration (maybe herein lies a clue to the fightback?), rocket scientists (for example) will make more money creating ‘rocket’ like returns for the rich instead of potentially saving humanity.
You have to ask ‘Where does it stop?’.
‘10,000 on Christmas Day – when precedent suggests around 1,000 or so total reads are likely’
Wow and lol. Let’s hope they stick around and fill your coffers a bit too! As the old saying goes about publicity and too many lemons.
I won’t take blame/credit for the surge – but will admit that I did post a link or two at some ‘international’ friendly/unfriendly sites which I regularly traverse.
Sorry. (?)
All best and keep recharging these batteries, I believe your counsel will be needed a lot in coming weeks and months.
Thanks
Not working again today….
I had missed the “customer” in “loan account.” I’m not sure that it makes a lot of difference to the point I’m making, however, surely there are some entries in the bank’s ledgers that link the customers accounts to those of the bank?
If I can return to the hypothetical example I gave:
Bank A lends Acme plc £1 million.
Acme plc repays Bank A the full amount plus interest over 5 years.
At the end of the 5 years, £1 million plus interest has flowed into Bank A’s reserves giving the bank a gross margin on the loan of £1 million plus interest because the bank did not use its own money to fund the loan but rather created it from nothing.
If I am correct – and I am struggling to find fault – this means that some £100 billion is flowing into the banking system every year, all of it a gift from the government.
Patrick
Please stop thinking there is something called money in a bank
There isn’t
There is only debt
That is all a ledger records
The bank does not end up with money (excepting interest) at the end of the repayment in your example. It ends up without debt. It’s balance sheet shrinks as a result, it dies it grow.
And the interest is settled by the person making payment assigning debt due to them to the bank. Sure that is a bank asset that they can extend to cover costs or pay dividends, but that’s it.
Until you stop thinking there is something tangible called money you will not ge5 this. There is only debt.
Thank you, Richard, for leading me to the “money is debt” aspect of MMT. I don’t recall reading about it in Stephanie Kelton’s: The Deficit Myth. Let me start by saying that I readily admit that all “fiat” money starts out as debt, or an IOU. However, where you have to convince me is that – given it’s tenuous beginnings – life can proceed thinking of money as debt. I do, though, find the idea of Roman Abramovich being riddled with debt very comforting; I’m also sure that he would take issue with the idea that, because he has no debt he has no money.
The reality is that the only time the concept matters at all is if the exchange rate for a particular currency collapses and the “debt” cannot be exchanged pari passu.
If the bank writes into my current account £50,000 then I will go out and buy a new car, in other words a bank entry into a ledger is no different to the bank putting £50,000, in £50 notes, into a box at the bank with my name on it.
In the case I have been making above: the repayments, by the borrower eventually appear in the bank’s ledgers as a credit and will then feed through into the bank’s asset base. Call it what you like, but Barclays Bank’s assets are now listed at £1.1 trillion and the bosses live like princes.
I look forward to your response.
Abromovich owns debt
Owning debt is control
That’s why mortgage means ‘the group of death’
But that apart I still have not a clue what you are asking me
Stop playng with notes – they too are IOUs – and you keep thinking they are real
Repaying a bank wipes out their asset. It does not transfer the. Money created to their ownership. Ony the interest is theirs to enjoy
The debt is destroyed, gone, vapourised. There is no money left
The double entry is in the GIMMs paper
And I will not be engaging on this again bevcau8se I have now made the point many times and you still persist in thinking money is something tangible – and it is not, ever. even when a note
Thank you, Richard, I think your intention to draw a line under this enquiry is correct, but I do have one last question, which I hope you will answer and then I will be gone. My problem has been that, although your videos are very informative, your written replies are less so. I can give a couple of examples and no offence at all is intended:
1. Of course Abramovich has some debts but that doesn’t detract from his vast wealth.
2. “Mortgage” does not mean ‘the group of death’ it is an agreement to borrow money; the etymology of “word” is from old French meaning “death pledge.”
Now to my question; your reference to GIMMS was most helpful and I noticed these words on page 13:
“This common medium of exchange is the money issued by the Bank of England. It takes two forms, cash and central bank deposits, called reserves, which together are termed ‘base money’. Reserves are deposits held by commercial banks in accounts at the Bank of England termed ‘reserve settlement accounts’. These deposits are created solely by the Bank of England and are used by commercial banks to settle transactions with one another.”
I include the first sentence simply because it appears to contradict your view of all money as debt, to show that I am not the only sceptic. More importantly, the second sentence is surprising because if the BoE created the commercial banks deposits, this may help to explain my confusion. But I still don’t know how the BoE did it and GIMMS do not elaborate.
Whether you choose to help is a matter for you, but either way I hope you recover from Covid and have a better 2021.
Patrick
Cash is the written form of n IOU
It is an indication of debt
That is what money is
Central bank reserves are created by debiting the banks account at the BoE and crediting the BoE
That’s it
Best
Richard