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It’s great, innit?

As for how much much lending is funded by deposits there is literally only one available answer. It is zero. Double entry makes that process impossible and banks live and die by double entry.

So, why do banks need deposits then?

Of course, there is another view.

18 thoughts on “It’s great, innit?”

  1. This looks like his ridiculous idea again that people borrow money from a bank just to keep it in their current account with the same bank.

    As usual, he will not see past the immediate, and refuses to consider what happens when people spend the money they have borrowed, because that doesn’t fit into his scheme.

  2. In the depressing period that is early January, how fortunate that we have the Pilgrim to provide some levity!

    Pilgrim Slight Return says:
    January 6 2024 at 8:42 am
    Looking at how persistent the detractors here are, I’m moved to ask where they actually come from?

    The fact that a number have come here and called you ‘left-wing’ when to me at least you are demonstrably ‘progressive’ rather than trad’., left wing I find interesting.

    So, where does this (un)healthy supply of detractors come from?

    Tufton Street?
    MI5?
    The Tory Party?
    Labour? (I’m serious).
    The MSM?

    I’ve got to say that I am curious. And in this world of dirty tricks these days, I’d strongly recommend it.

    +3
    Reply
    Richard Murphy says:
    January 6 2024 at 9:13 am
    I can’t tell you PSR.

    All I can say is that some of them are very good at using multiple identities.

  3. “Double entry makes that process impossible” – my arse it does.

    Deposit – debit bank and credit creditor
    Loan – debit debtor and credit bank.

    Money comes in and goes out, resulting in
    a balance representing someone who owes you money and a second balance representing someone else, to whom you owe money.

  4. I’ve been having fun with Perplexity AI. I asked what Richard Murphy thought about MMT and got this response:
    “Richard Murphy has expressed mixed views about Modern Monetary Theory (MMT). In his blog posts, he differentiates what MMT says from what flows from an understanding of it, and he does not agree with some of the founders of MMT, stating that what they say is either unnecessary, wrong, or only consistent with far-right political viewpoints
    1
    2
    . He also criticizes the misnaming of MMT, stating that it is neither modern nor a theory, but rather a description of how money works in an economy with its own fiat currency. Murphy’s stance on MMT seems to be critical, as he has highlighted the need for a clear understanding of its implications and has pointed out what he perceives as misconceptions about MMT”

    Quite good

  5. When asked about Richard Murphy’s views on the role of taxation, it comes up with a much more compact statement than Spud ever could, which also reveals his intellectual acuity :
    “Richard Murphy, a British chartered accountant and political economist, advocates for the role of taxation in controlling inflation and destroying money created through the process of money creation. He emphasizes that tax is not just about funding government spending, but also about managing the economy. According to Murphy, taxation is a tool to prevent corruption and abuse, eliminate poverty, and effect social change through the use of accounting. He has been involved in tax activism and is the founder of the Tax Justice Network, the Fair Tax Mark, and Finance for the Future. Murphy’s work focuses on the need to use accounting as an instrument to effect social change, particularly in the prevention of corruption and abuse, and the elimination of poverty”

  6. Assume he’s not done cash flow forecasts or statements to any great degree during his career if he’s claiming double entry doesn’t allow for this

  7. @bravefart

    The comments thread on his banking post are a great read. The potato at his angry fuming finest, my favourite was his demand for a full name and CV.

  8. Spud thinks he can eliminate poverty cos accounting? Lmao.

    There are some people to whom you could hand the world on a plate, and they’d still end up impoverished.

  9. Exactly, BniC – I can’t imagine how the spud thinks double entry accounting makes lending backed by deposits impossible – or indeed, how double-entry accounting makes any business transaction “impossible” (or ‘possible,’ for that matter). In a former lifetime, I did the accounting for a small bank – manually! We had an Apple ][ to print up the statements nicely, but the trial balance was all done by my hand, and then entered in a spreadsheet for formatting and printing (visicalc, maybe?).
    I can verify that we were able to take deposits and lend against them, and that we had to fund our book every day – the nice treasury people came in early in the morning to do just that (we are three hours behind the money market in Toronto (and to a lesser extent, New York – Canadian B Banks aren’t big players on Wall Street), their hours were something like 6:30 to 2:00 or so.

  10. The potato at his angry fuming finest, my favourite was his demand for a full name and CV.

    My response to that would be: “After what you did to fcablog’s Christie Malry, not a chance!”. It wouldn’t get through his filter, but I hope it would upset him

  11. Exactly right. Someone with actual experience. Deposits fund the book. An individual loan into a bank customer account gives no net fund flow but they spend the money…. Or they are as stupid as our tuberous friend

  12. Bloke in wales

    I haven’t forgotten that. Christie was a million times the person Murphy could ever hope to be.

    This is funny, though, he makes great play of a series of quotes on money creation. I thought it unlikely that Norges Bank would be saying exactly that, so here’s what he cherry picked:

    Here we’re advised by the Norges Bank, the Bank of Norway, that “When you borrow from a bank, the bank credits your bank account. The deposit – the money – is created by the bank the moment it issues the loan. The bank does not transfer the money from someone else’s bank account or from a vault full of money. The money lent to you by the bank has been created by the bank itself – out of nothing: fiat – let it become. The money created by the bank does not disappear when it leaves your account. If you use it to make a payment, it is just transferred to the recipient’s account. The money is only removed from circulation when someone uses their deposits to repay a bank, as when we make a loan repayment… To sum up: banks create money out of nothing and withdraw it when loans are repaid.”

    Later on about two paragraphs down we have this:

    Nonetheless, probably the most important factor is that the banking sector is one of the most highly regulated sectors in society and is subject to strict supervision. A bank cannot operate without a licence, and banks are required to satisfy a number of requirements relating to capital adequacy and liquidity management, all of which limit bank lending and money creation. Norwegian banks cannot behave as Stockholms Banco did in the 1600s. By ensuring that banks are solid and sufficiently liquid, regulation and supervision also underpin trust in the money we use.

    He appears to lack the skills required to do basic research. It speaks volumes about the degeneracy of higher education that anyone could consider him fit to teach anyone at any level.

  13. BraveFart

    Those comments are just great:

    Let’s stop the stupidity, shall we?”

    You could start by acknowledging the real world, in which what you are saying is clearly untrue. Once again, no-one is taking issue that banks can create credit, but you seem to be living in a fantasy that banks can do so without limit.

    “Banks don’t need deposits to lend.”

    In that case why do they bother having them, giving they are a cost? Regulation forces them to do so as well. By your logic banks could never go bankrupt and bank runs would never happen as they can create money at will.

    “And there was savings glut which never funded a penny’s worth of investment.”

    In 2020. Because of Covid lockdowns. When there were fewer opportunities to spend disposable income and new investment projects were essentially halted.

    You also say somewhere that increased savings increase interest rates. Which is wrong. THe opposite is true.

    “As for interest rates,if you really think they do not move in accordance with central bank wishes then you are obviously living an evidence free existence.”

    Only the base rate moves directly with the BoE’s wishes. It acts as a floor on the overnight rate. Even then, all other rates are set by the market. Look at yield curves, bonds etc in any interest rate market around the world and you will see this to be the case.

    “As for my knowledge – so fare none of you have shown I have said anything (literally, a thing) wrong.”

    See above. Various people have pointed out the many mistakes you make. It’s obvious to anyone with even basic knowledge of markets or economics that you are wrong, but are just too arrogant to admit it.

    0
    Richard Murphy says:
    January 6 2024 at 9:24 pm
    I have never, ever, said banks can create money without limit. There is always a limit to the number of credit worthy customers. Usually they overestimate that number. That is why they could fail – although in the current era the chances are close to zero – which you do not recognise. The central bank reserve accounts basically guarantee this now by providing the funds to prevent runs.

    I have never said governments can create money without li9mit. They crete infaltiomn if they do. That is why we tax.

    And as for interst rates – I can’t be bothered to comment on your drivel. If you think what you do then you are, very simply, a fool.

    File a full CV next time. I know you won’t. Why? Because this is your third abusive identity here.

    Further on:

    Edward says:
    January 6 2024 at 9:24 am
    Richard,

    I was reading the BoE paper you link to about money creation and something stood out.

    You have on several occasions written that QE is free money for banks.

    The BoE paper, which you are putting forward as a trusted source, clearly writes (on p24) with explanation:

    “Why the extra reserves are not ‘free money’ for banks”

    Does this mean that your claim that QE is free money for banks is wrong?

    0
    Reply
    Richard Murphy says:
    January 6 2024 at 9:28 am
    No

    I don’t agree with the BoE on that

    Not only is the money free, they actually pay the banks to take it

    The BoE does not wish to admit that

    +15
    Reply
    Edward says:
    January 6 2024 at 11:21 am
    So the BoE is right when you agree with them but wrong when you disagree?

    “Not only is the money free, they actually pay the banks to take it ”

    You know that not only is this complete nonsense, it’s absolutely insane?

    The BoE explain they are just acting as intermediary. So aren’t getting free money.

    Banks aren’t making the huge profits you have previously claimed because of QE. You can see it in their annual accounts. Had you bothered to look.

    QE involves selling an asset (Gilt) which bear interest and receiving cash which pays interest at the BoE base rate. So even if you are making money on the interest on your reserve deposits, you aren’t getting any on the bonds you used to own but have sold. So it’s not “free” as you are claiming.

    You are literally lying about this.

    +1
    Richard Murphy says:
    January 6 2024 at 2:48 pm
    I have explained the reality of QE time and again here.

    Reserves are created from thin air and bizarrely interest is paid on them.
    QE itself s just a sham.

    You really need to stop talking nonsense.

    +4
    Edward says:
    January 6 2024 at 5:01 pm
    The only one here talking nonsense is you.

    Reserves are created and SWAPPED for interest paying bonds. Basic asset/liability accounting, which you seem incapable of.

    Yet somehow you claim that banks got billions of free money. Which would clearly show up in their profit and loss statements and accounts. Yet it doesn’t ever.

    The BoE explain it very clearly, but it seems you are only willing to agree with them when it suits your argument (as above, even though you get that all wrong as well) but then ignore them when it doesn’t.

    It seems to me that you basically just make things up, then pretend to be an expert, all while desperately seeking the approval of most of the sychophants who follow you.

    0
    Richard Murphy says:
    January 6 2024 at 9:09 pm
    Oh dear, another wilful idiot

    The whole process was:

    1) The government spent – let’s say £10 billion and increased the CBRAs bu the that sum

    2) It issued debt for £10 billion and reduced the CBRAs by that sum

    3) In a pre-annoounced action they bought £10 billion of bonds so incerasing the CBRAs by £10 billion.

    (2) and (3) were always a sham

    (1) was all that rteally happened

    You wilfully promote the lie that (2) and (3) mattered. They did not.

  14. The way double entry bookkeeping works is that debits are on the door side and credits are on the window side. Carbo Stodge Man obviously has his office set up the wrong way around so that his left hand doesn’t know what the right hand is doing.

  15. Martin Near The M25

    If his theory was right, he could fund his green fantasies by opening a bank. He wouldn’t have to steal everybody else’s money to waste because banks don’t need deposits. He could spend infinity money and it would have no bad consequences at all.

    As Zaphod said, put your analyst on danger money baby.

  16. “If his theory was right, he could fund his green fantasies by opening a bank. ”

    If his fantasy was right, then couldn’t we all open our own banks and create our own money ad nauseam?

  17. All bank lending is financed either by the bank’s shareholder capital (including accumulated profits) or by deposits (including those from other banks). That must be the case because their balance sheets balance and the banks do not have vastly negative fixed assets.
    Murphy wishes us to believe that banks have massive assets comprising loans to customers unmatched by liabilities so that their balance sheets do not balance. That is not true.

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