[Pops]

[This is because when a bank creates a new loan, it also creates a new balancing deposit.

In the banking system.

But as usual, you seem to deliberately miss my point, which was that banks do not have more loans than deposits.

All loans cancel all deposits.

Leaving cash/reserves and equity.

[MonteQuest]

My question no one answers is, if all money is debt, and debt defaults and repayments destroy the money created, what prevents the money supply from going to zero when all debt defaults and/or all debts are paid?

[MonteQuest]

But as usual, you seem to deliberately miss my point, which was that banks do not have more loans than deposits.

I guess it's over your head to grasp, Pops. Banks create new money in the form of loans above what they have on deposit or no new money would be created. Making a ledger entry to balance the books does not negate this fact.

When banks extend loans to their customers, they create money by crediting their customers’ accounts. That's where the "deposit" balance comes from in the ledger.

[vtsnowedin]

I think you are wrong there. When they loan it out for say a car loan it soon comes back into the bank as a deposit from the car dealer. It is 90 % of that deposit that can be reloaned out to somebody else which will also come back to the bank as yet another deposit. So at all times they have deposits equal to 110% of the amount loaned out and reserves of 10 percent (or whatever the law requires today)

No....If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000).

I don't think you are disagreeing with me here just extending my example a couple of steps further. At the end the Bank has $1000 in deposits ( accounts payable) $900 loaned out ( accounts receivables) and $100 in cash reserves and their books balance.

[Pops]

Agreed, some means of exchange that supplants barter as the method of trade is very useful. That is why it was invented at least 6000 years ago and continues today, but it doesn't have to be fiat currency.

No it doesn't have to be fiat money.

My whole point here is that fiat money — yes at the mercy of government — plus the fractional reserve system make a more responsive, flexible system than commodity money or equity money.

The big thing we face in What Do We Do is try to muddle the economy along. Any rigid monetary system where the amount of dollars doesn't fluctuate automatically means the dollar's value and so asset value and the price of stuff must take up all the slack.

Better the loans and offsetting deposits increase or decrease with the market.

[Pops]

But as usual, you seem to deliberately miss my point, which was that banks do not have more loans than deposits.

I guess it's over your head to grasp, Pops. Banks create new money in the form of loans above what they have on deposit or no new money would be created. Making a ledger entry to balance the books does not negate this fact.

Did I say differently?

A new loan creates both a new asset and a new liability.
Retirement of the loan removes both the asset and the liability.

Why do you feel the need to be so condescending?

[MonteQuest]

I don't think you are disagreeing with me here just extending my example a couple of steps further. At the end the Bank has $1000 in deposits ( accounts payable) $900 loaned out ( accounts receivables) and $100 in cash reserves and their books balance.

Yes, but $900 of those deposits is new money created above and beyond the original deposit, as I just posted.

[MonteQuest]

Did I say differently?

A new loan creates both a new asset and a new liability.
Retirement of the loan removes both the asset and the liability.

Why do you feel the need to be so condescending?

You seem to be saying differently. To anyone reading your post, you seem to insist that banks don't lend out more money than their customers have on deposit. That just isn't true.

If you have said, like I did, that the banks make a corresponding deposit into the loan bearers account to make the books balance, then I wouldn't feel exasperated. But you did not. You were refuting JV153 who said that banks "lend out more than they have on deposit" by saying if you "loan more than deposits you have 0 equity."

Were you trying to make some other point I missed? If so, sorry for the condescension.

[vtsnowedin]

I don't think you are disagreeing with me here just extending my example a couple of steps further. At the end the Bank has $1000 in deposits ( accounts payable) $900 loaned out ( accounts receivables) and $100 in cash reserves and their books balance.

Yes, but $900 of those deposits is new money created above and beyond the original deposit, as I just posted.

And what is wrong with new money?
You seem to think that the borrower did nothing of any importance with the money while he had it. So he pays the loan back and the "new money " drops off the banks balance sheet. He still has the house or car or factory equipment he bought with the loan so has gained wealth and that would not go away if all the loans were called and paid off.

[MonteQuest]

And what is wrong with new money?
You seem to think that the borrower did nothing of any importance with the money while he had it.

Nothing. I wasn't implying anything. I was just clarifying.

Still looking for an answer to my question: If all money is debt, and debt defaults and repayments destroy the money created, what prevents the money supply from going to zero when all debt defaults and/or all debts are paid?

[Pops]

My question no one answers is, if all money is debt, and debt defaults and repayments destroy the money created, what prevents the money supply from going to zero when all debt defaults and/or all debts are paid?

All money is not debt.

US dollars aren't backed by anything except the credit of the US government.

So I've said in all these type discussions that when dollars are no good it will be the least of worries.

[vtsnowedin]

I think your premise is wrong. Not "All" money is debt.
Perhaps you should not look at just the medium of exchange (money) and look at wealth. Wealth is created when say a factory combines $1000 of raw materials with $1000 of labor and builds a product they can sell for $3000. Or when a mine company brings ore to the surface that is worth $100 per ton and only spends $50 a ton doing it, Or an oil company brings oil to market for a price more then they spent getting it to market. Or a company that goes public and sells a million shares of stock at $10 a share and uses the cash to build widgets that run an app that sells like hot cakes and drive the stock price to $50/ share creating $40,000,000 of wealth that wasn't there yesterday and if the stock market crashes might not be there tomorrow.

[Pops]

You seem to be saying differently.

Sorry.

I've said this several times

The economy post peak will be shrinking, so the money supply should shrink too. It will do that automatically as loans are either paid off or defaulted.

I took it for granted the few of us here understood that making loans make deposits and retiring loans eliminates those deposits – that is the automatic part.

[MonteQuest]

All money is not debt.

US dollars aren't backed by anything except the credit of the US government.

So I've said in all these type discussions that when dollars are no good it will be the least of worries.

All fiat money is debt. Are you talking gold and silver?

When the economy can no longer grow, it will be the first of all worries. With no more bank loans coming into the system, we would have the mother-of-all margin calls the world over almost immediately. The highly leveraged world of banking would be forced to de-leverage to meet their debt obligations. By defaulting on their debts the banking system would seize up as banks become blatantly insolvent, as the equity in their positions are destroyed. This again would force everyone to sell their assets in a cascading mess. The money supply would disappear. Those still holding actual cash dollar bills might as well wipe their ass with them, as they will be worthless.

Long before the wheels of industry spin to a stop, or oil stops flowing,we will collectively come to this impasse. This is the crisis that PO brings to our debt-based money system. We are struggling to avoid a crash even when we are producing more oil than ever via using unrepayable bad debt(QE) to finance new oil production.

[Pops]

Wealth is created when say a factory combines $1000 of raw materials with $1000 of labor and builds a product they can sell for $3000.

This is the thing that just does not percolate down when folks say loans require growth to pay the interest. Or capitalism requires growth.

It is a block they just can't get past because capitalism and bankers are evil. (the part about bankers may be right)

Interest—the time value of money— is paid with work. It is rent on money, a thing consumed.

Just like corn flakes are consumed and the value paid with work, not GDP growth or another bank loan.

[MonteQuest]

I think your premise is wrong. Not "All" money is debt.

All major currencies in the world are fiat and debt-based. That isn't up for debate.

[MonteQuest]

I think your premise is wrong. Not "All" money is debt.
Perhaps you should not look at just the medium of exchange (money) and look at wealth. Wealth is created when say a factory combines $1000 of raw materials with $1000 of labor and builds a product they can sell for $3000.

And when that purchaser buys that product he uses debt-based money that was borrowed at interest to do so.

[MonteQuest]

I've said this several times...The economy post peak will be shrinking, so the money supply should shrink too. It will do that automatically as loans are either paid off or defaulted.

But you never answer how that money supply won't shrink to zero. Especially since there is more debt than the money supply.

[MonteQuest]

This is the thing that just does not percolate down when folks say loans require growth to pay the interest. Or capitalism requires growth.

It is a block they just can't get past because capitalism and bankers are evil. (the part about bankers may be right)

Interest—the time value of money— is paid with work.

And that work is paid for with debt-based fiat money borrowed at interest. Do you deny that?

[Pops]

All fiat money is debt.

If by debt you mean an obligation of the government then yes.
But unlike bank deposits, the offsetting asset is not a bank loan but the net worth of the government, that makes FRNs a net asset.

google inside and outside money

this is the first hit but look it up for yourself, there is a fundamental difference between bank money and FRNs,

https://www.minneapolisfed.org/research/sr/sr374.pdf

Money is an asset that serves as a medium of exchange.
Outside money is money that is either of a fiat nature (unbacked) or backed by some asset that is not in zero net supply within the private sector of the economy. Thus, outside money is a net asset for the private sector. The qualifier outside is short for (coming from) outside the private sector.
Inside money is an asset representing, or backed by, any form of private credit that circulates as a medium of exchange. Since it is one private agent’s liability and at the same time some other agent’s asset, inside money is in zero net supply within the private sector. The qualifier inside is short for (backed by debt from) inside the private sector.

Net asset means there is no offset for FRNs, a buck is worth a buck whether it is backed by a commodity or not.
Zero net supply means all bank deposits are offset by a matching loan. Their value is only as good as the loan they originated with. (not each deposit of course but the system balance as a whole)