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<DIV>If your readers want to keep up & need clarification on money
creation-debt-etc. follow Naked Capitalism & ZeroHedge plus other links
provided by these 2 sites</DIV>
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<DIV style="font-color: black"><B>From:</B> <A title=dharao4@yahoo.co.uk
href="mailto:dharao4@yahoo.co.uk">robert searle</A> </DIV>
<DIV><B>Sent:</B> Wednesday, October 19, 2011 6:07 AM</DIV>
<DIV><B>To:</B> <A title=p2p-foundation@lists.ourproject.org
href="mailto:p2p-foundation@lists.ourproject.org">p2p-foundation@lists.ourproject.org</A>
</DIV>
<DIV><B>Subject:</B> [P2P-F] Fw: The Credit Creation Controversy......A Need For
AResolution..?</DIV></DIV></DIV>
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<DIV
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size=2 face=Arial>----- Forwarded Message --<BR></FONT><BR></DIV>
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<DIV style="RIGHT: auto">The following comes from myself and Facebook of all
places, but exposes an important area of controversy that needs to see the light
of day more, and more.It revolves around HOW exactly banks create new money.
There are two basic versions..</DIV>
<DIV> </DIV>
<DIV>i) "Old " Fractional Reserve Banking.</DIV>
<DIV> </DIV>
<DIV style="RIGHT: auto">This is the idea that banks create new money as
repayable loans based on a small fraction of their reserves. In other words,
they create more money than they have which when paid off is said to be deleted
otherwise it could be seen as fraud. This scenario is accepted by many experts,
and textbooks, and the detail may vary. </DIV>
<DIV> </DIV>
<DIV>ii) "Modern" Credit Creation.</DIV>
<DIV> </DIV>
<DIV>This is the notion that banks do not create more new money than they have,
and may quickly back it up notably by a loan from other banks, or the Central
Bank. Unlike Fractional Reserve Banking the books are properly balanced.This is
espoused by Chris Cook who describes it as follows....(ref Heterodox
Economics FB)</DIV>
<DIV> </DIV>
<DIV> </DIV>
<DIV>.<BR><BR>I go in to the bank for a loan of $1,000.<BR><BR>It creates the
$1,000 as virtual money and deposits this virtual cash in my account at the same
instant.<BR><BR>So - intraday - it is holding a demand 'cash' deposit for me on
the one hand, and I am now a debtor to the bank on the other hand for a defined
loan period. But your cash deposit is not a 'loan' to the bank, who is merely
acting as custodian for you in respect of it at this point.<BR><BR>The bank's
books are now unbalanced, because an undated demand deposit is not an accounting
liability of the same type as a dated loan to the bank from a retail depositor,
or another bank.<BR><BR>The bank must therefore seek out and obtain the
necessary dated loans (known as 'term deposits'), typically overnight or weekly
term, to balance its credit and debt obligations. The necessary ultra short term
deposits come from other banks, and from the central bank.<BR><BR>The bank then
continues to hold the demand deposit to your order until you give it
instructions to transfer some or all of it by lending or spending
it.<BR><BR>Every night there is a 'clearing run' carried out at the central bank
at which all of the day's payment transactions are cleared and a net balance is
transferred. <BR><BR id=yiv1473658616yui_3_2_0_15_131859990975546>eg if Bank A
is due to pay Bank B $1500, and Bank B is due to pay Bank A $500,then only the
net $1000 is transferred from A to B. </DIV>
<DIV
class="yiv1473658616commentActions yiv1473658616fsm yiv1473658616fwn yiv1473658616fcg">about
an hour ago</DIV>
<DIV
class="yiv1473658616commentActions yiv1473658616fsm yiv1473658616fwn yiv1473658616fcg"> </DIV>
<DIV
class="yiv1473658616commentActions yiv1473658616fsm yiv1473658616fwn yiv1473658616fcg">Elsewhere
on the FB Heterodox Economics site he says the following, and presents three
references for consideration....</DIV>
<DIV
class="yiv1473658616commentActions yiv1473658616fsm yiv1473658616fwn yiv1473658616fcg"> </DIV>
<DIV style="RIGHT: auto"
class="yiv1473658616commentActions yiv1473658616fsm yiv1473658616fwn yiv1473658616fcg">.............<VAR
id=yui-ie-cursor></VAR>As J A Wheeler put it, Reality is defined by the
questions you put to it.<BR><BR>I think the problem is that Economics as
practised is an ideological distortion of reality. The reason why I have taken
such time and trouble to analyse and understand the reality of money creation is
that the general misconception as to the relationship between credit and money
is completely and fundamentally crucial.<BR><BR>The entire body of Keynesian,
Neoclassical and Austrian economics is invalidated by this
misconception.<BR><BR>I have written to the authors of the new book referred to
- most of whom I know personally - complimenting them on an admirably clear
exposition of the UK system, and pointing out exactly why and how their
assumption as to the accounting polarity of bank credit is diametrically
wrong.<BR><BR>These articles of mine in Asia Times covered the subject<BR><BR><A
href="http://www.atimes.com/atimes/Global_Economy/MG27Dj02.html" rel=nofollow
target=_blank><FONT color=#3b5998><SPAN>http://www.atimes.com/atim</SPAN><SPAN
class=yiv1473658616word_break></SPAN></FONT><SPAN>es/Global_Economy/MG27Dj02</SPAN><SPAN
class=yiv1473658616word_break></SPAN>.html</A><BR><BR><A
href="http://www.atimes.com/atimes/Global_Economy/MH04Dj02.html" rel=nofollow
target=_blank><SPAN>http://www.atimes.com/atim</SPAN><SPAN
class=yiv1473658616word_break></SPAN><SPAN>es/Global_Economy/MH04Dj02</SPAN><SPAN
class=yiv1473658616word_break></SPAN>.html</A><BR><BR><FONT color=#333333>No-one
has yet demonstrated that my analysis of the banking system is incorrect, and
most people are in agreement that this analysis of the relationship between the
Treasury and the Central Bank is accurate.</FONT><SPAN><FONT color=#333333>
</FONT>
<DIV
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<DIV class="yiv1473658616UIImageBlock yiv1473658616clearfix"><A
class="yiv1473658616external yiv1473658616UIImageBlock_Image yiv1473658616UIImageBlock_MED_Image"
title="" href="http://www.atimes.com/atimes/Global_Economy/MG27Dj02.html"
rel=nofollow target=_blank><FONT color=#333333><IMG class=yiv1473658616img
alt=""
src="http://external.ak.fbcdn.net/safe_image.php?d=AQDU-RgK-ul4N1nM&w=90&h=90&url=http%3A%2F%2Fwww.atimes.com%2Fimages%2Ff_images%2Fprint-this-article.gif"></FONT></A>
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<DIV class=yiv1473658616uiAttachmentTitle><B><A
href="http://www.atimes.com/atimes/Global_Economy/MG27Dj02.html" rel=nofollow
target=_blank><FONT color=#3b5998>Asia Times Online :: A very secret
agent</FONT></A></B> </DIV><SPAN class=yiv1473658616caption><A
href="http://www.atimes.com/" rel=nofollow target=_blank><FONT
color=#3b5998>www.atimes.com</FONT></A></SPAN>
<DIV
class="yiv1473658616mts yiv1473658616uiAttachmentDesc yiv1473658616translationEligibleUserAttachmentMessage">
<DIV id=yiv1473658616id_4e9d3ccf899c58383409833
class=yiv1473658616text_exposed_root>Asia Times Online. The Asia News Hub
providing the latest news and analysis rega<SPAN
class=yiv1473658616text_exposed_hide>...</SPAN><SPAN
class=yiv1473658616text_exposed_show>rding economics, events and trends in
business, economy and politics throughout Asia.</SPAN></DIV>
<DIV class=yiv1473658616text_exposed_root><SPAN
class=yiv1473658616text_exposed_show></SPAN> </DIV>
<DIV class=yiv1473658616text_exposed_root><SPAN
class=yiv1473658616text_exposed_show>The Following Points Should Be
Made...</SPAN></DIV>
<DIV class=yiv1473658616text_exposed_root><SPAN
class=yiv1473658616text_exposed_hide><SPAN
class=yiv1473658616text_exposed_link><VAR
id=yiv1473658616yui-ie-cursor></VAR></SPAN></SPAN> </DIV></DIV></DIV></DIV></DIV></SPAN></DIV></DIV></DIV></DIV></DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt"> </DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt">a)
Chris Cook gives three references in the above.. But they are all articles by
himself, and only gives one "credible" reference to back up his credit creation
claim!!! To be fair on FB he gave a Wikipedia ref on FB <VAR
id=yiv1473658616yui-ie-cursor></VAR><VAR
id=yiv1473658616yui-ie-cursor></VAR>which does not explain much (ie.it makes a
technical subject overly technical, or complex, and hence, "incomprehensible" to
most non-initiates).</DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt"> </DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt">b)
It maybe a good idea to find how credit creation really works with the help of
solicitors specialising in banking law. </DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt"> </DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt">c)
Even the trade organizations might be willing to "divulge" how it "really"
works..but ofcourse top bankers can be notoriously secretive about such
matters..or express what they do in an "incomprehensible" language..</DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt"> </DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt">d)
A book called Modern Money Mechanics was published by the Federal Reserve Bank
of Chicago which seemed to support the "old" fractional reserve system. This was
pounced as being "authorative" and relevant by monetary reformers including
Ellen Brown.</DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt"> </DIV>
<DIV
style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt"> </DIV></DIV></DIV></DIV><BR><BR></DIV></DIV></DIV>
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