\”He doesn\’t say that moving things about isn\’t wealth creation. He says that moving money about isn\’t wealth creation.\”
Which is a blindingly stupid thing to say.
Moving the short term deposits in our bank accounts (the little amounts that vary over the month in our current accounts for example) into long term investments in mortgages, companies and other investments: you know, fractional reserve banking and maturity transformation, this is very much creating wealth.
Like, for example, banks using the money in our accounts to lend it to Rolls Royce so they can make jet engines?
Even moving our own money from lower to higher-earning interest bearing accounts is wealth creation, isn’t it?
Tim adds: It is for us, yes, but wherher it is for the system as a whole is moot. Depends on what was happening to it before. If the bank would only lend it short term before, because they were worried about you taking it away, but now they’ll lend it longer term, as you’re locked in a little to get the higher interest, then yes, generally wealth creating. But otherwise, no, it’s just a transfer from hte banks’ profits to you. Which is fine, but doesn’t increase wealth generation in general, just changes the distribution of it.
Tim, I think you are wrong on maturity transformation. I’ve set out the flaw in it (which is pretty complicated) here: http://ralphanomics.blogspot.com/2010/09/flaw-in-maturity-transformation.html
Thanks, Tim. It’s the first five words after ‘Tim adds’ that matter to me, of course.
Bank lending has been mostly to homeowners of late: as the supply of land is inelastic it has just put up residential -land prices to form massive bubbles round the world,leading to a bust which nearly KO’ed capitalism for ever.
Also ,as any Social Crediter knows , banks don’t lend out savers’ money at interest:most of these “loans” are completely new sums they have invented, in the same way the State creates the credit to buy the bonds for quantitative easing.But the private sector banks do much more of it,all the time.
DBC: excellent comment! This maturity transformation idea confuses two different banking functions: the cash deposit protection role and the channelling of savings as loans.
FRB, in my view , is a menace.