If everyone is so skint, why can't the Government just print more money? Discuss!

[Half Time Pies]

what they are doing is taking the technical mechanics of a particular process and mis-representing it. their claim is that when a bank create that deposit, the cash come from nothing, theres nothing else in the system to back that amount until they created it, when in reality they have a cash surplus on the balance sheet to begin with. they explicitly deny banks gain funds from savers or other sources. so why do they bother to attract savers in if they can magic money? why sell bonds or shares to raise capital then?

To create a loan a bank does not necessarily need surplus cash in reserve. When the bank creates a loan, it does so by simply making an accountancy entry on its balance sheet: It creates an asset ‘the loan’ and a liability ‘the deposit’. The process of creating commercial bank money is therefore as simple as a customer signing a loan contract, and the bank typing numbers in to an account set up for that customer. As the money is paid back the broad money supply decreases and what is left is the interest, which is the banks profit on the money that it created.

However, although the bank has effectively created new broad money this money is not available to the bank to spend, invest, or pay dividends unless it is deposited with them by the recipient (generally the people who sells good or services to the person who takes out the loan). Hence, the reason why the bank still need’s to attract deposits.

What the bank also needs to concern itself with is that it has enough funds so that if customers default on their loans it can absorb these losses without threatening the banks solvency. The number one determinant therefore of broad money creation is the banks confidence that the loans its issues will be paid back and the confidence in the liquidity and solvency of other banks and the system as a whole. This is why banks are currently not lending and the broad money supply has been decreasing.

 

[pwlr1966]

doh! it costs money to print money

 

[FootballFan7]

if only the crisis of having money, was as simple as this! then there would be no problems all over the world..