The same is true if you put your money in a bank. If you put your money in a bank, all you have done is move money out of your current account into a deposit account at the bank.
This is simply an electronic transfer between two balances in the bank’s bookkeeping system. The bank then pays you interest, which it might not have done on the current account, but otherwise, precisely nothing has changed. The money in the bank was dead when it sat in your current account. It became interest bearing when you put it into a deposit account, but the bank doesn’t do anything with it.
It does not, in particular, lend it to anyone else.
It can’t because it owes it back to you. It can’t take the money that it owes back to you and say, well, I don’t owe it to whoever you are now, and I’ll put it onto somebody else’s account because you’ll say, hey, what have you done with my money? Where is it? It’s got to stay on your bank statement to record the fact they owe you. They can’t transfer your bank statement to somebody else’s ownership.
And that’s all that having money in the bank means. It means you have a balance on your bank statement. Nothing else at all.
When they lend money to somebody else, it’s new money that they create for that purpose. So, saving in a bank, is absolutely dead money, totally and utterly. It does not produce any new economic activity.
If banks don’t need deposits in order to be able to lend then how can we have bank runs?
My goodness! It must take absolute genius to not understand how the banking system works. Even as a rather disinterested 14 year old I got that much out of Economics. Yes, for each individual depositor the funds have to be there to return their deposits. But for all depositors, you’re into the probabilities that they will. Usually low but rising to 100% in a bank run.
I find his ideas of transfers from current to deposit account quite novel as well. I don’t think I’ve ever done that. Current accounts are for short term money management. Interest bearing accounts for long term money. Why on earth would they be with the same bank? Prudence would say not.
Out of a crowded field, this is perhaps, the most stupid thing he has ever said. If it were true, why would they pay interest on accounts, offer free banking or even accept deposits at all?
Could it be that he is testing the gullibility and downright inanity of his claque? Will Ely be the Jonestown of the demented Left? Could we be close to the apotheosis of the Shi# of the Fens?
BiS – Call and short notice deposit accounts were certainly available as long ago as the 70s and with the interest rates prevailing at the time it made sense for treasury managers to reward accounts that attenuated volatility.
This seems to be a common trope amongst the left (or more accurately those that want others to pay their way), that banks create money out of thin air, putting cash ‘off-shore’ means you don’t have to pay any tax on gains, that governments don’t need to borrow money, that 1% of the population are ultra rich and that they somehow evade tax by using special dodges no one else knows about so they pay less tax than cleaners.
I wonder if he thinks Gringott’s Bank is real? That one certainly seemed to follow the Scrooge McDuck philosophy of money management.
Is there something missing in my understanding* of Fractional Reserve Banking?
* A not unlikely situation…..
Oh I’m well aware of what’s on offer from banks, always have been. I’m currently been paid a good rate of interest on one of my current accounts. But I do spread my money over different types of accounts, banks, countries & currencies. I’d have been ferked when Barclays abruptly locked my current account with them for no discernible reason if I didn’t.
Savings are dead money.
There’s nothing useful about saved money. I know that you’d like to think there was. I know that personally, you think if you’ve got some savings, you feel more secure. And I do not doubt that. I think, in fact, having some savings is an extremely useful thing for everybody to have in their possession, if they can.
Why? Because it provides an element of security in the event of some unforeseen disaster that, frankly, helps a lot. People manage their lives and so of course people need to save but that doesn’t mean to say that the money that people save by putting cash into bank accounts or, frankly, money into shares is of any use to the economy at all.
I don’t think (and I have listened to both extensively) that anyone could find anything more moronic than the above passage in the work of either Alex Jones or David Icke.
Let’s use the two examples I’ve just mentioned. If you buy shares with your saving you buy second hand shares. So, for example, if you want to buy some shares in Marks & Spencer PLC, Marks & Spencer PLC hasn’t issued any shares for a long time, to the best of my knowledge, which is a fact true of almost every company on the London Stock Exchange.
I am sure he’s basing this on the latest research…
Instead, if you want to buy some shares in Marks & Spencer PLC, you’ll buy some second-hand shares in Marks & Spencer PLC. In other words, ones that somebody who now owns those shares, wants to get rid of to somebody else. Now there’s nothing wrong with buying secondhand items. I would encourage it in certain parts of the economy because that’s called practical recycling, but recycling secondhand financial products adds absolutely precisely no value to the economy at all.
Well, except to the extent that somebody takes a bit of commission and lives on that commission as the return for their job in buying and selling those between the people involved, but that’s tiny. It doesn’t create new investment. Marks and Spencer’s don’t even benefit from the transaction directly.
They might indirectly, in terms of the director’s bonus scheme, because the share price stays up because you bought some more shares, and most directors of large companies in the UK are incentivised for keeping their share price high. But in practice, the company itself really doesn’t benefit. Gains nothing.
So that is dead money. The money you saved simply went to somebody else in the economy. What they do with it is up to them. But you can’t claim that your money created benefit in their hands, because you don’t know that.
Where does one even begin fisking that? you could claim the same of any transfer between people. The welfare/ universal credit being paid out to some Glaswegian to spend on Industrial Strength cider is a ‘benefit’?
The same is true if you put your money in a bank. If you put your money in a bank, all you have done is move money out of your current account into a deposit account at the bank.
This is simply an electronic transfer between two balances in the bank’s bookkeeping system. The bank then pays you interest, which it might not have done on the current account, but otherwise, precisely nothing has changed. The money in the bank was dead when it sat in your current account. It became interest bearing when you put it into a deposit account, but the bank doesn’t do anything with it.
Enter Tim for the hundredth time in the last Calendar year,
It does not, in particular, lend it to anyone else.
It can’t because it owes it back to you. It can’t take the money that it owes back to you and say, well, I don’t owe it to whoever you are now, and I’ll put it onto somebody else’s account because you’ll say, hey, what have you done with my money? Where is it? It’s got to stay on your bank statement to record the fact they owe you. They can’t transfer your bank statement to somebody else’s ownership.
He’s obviously familiar with Silicon Valley Bank and First Republic, to name the two most recent high profile bank runs
And that’s all that having money in the bank means. It means you have a balance on your bank statement. Nothing else at all.
When they lend money to somebody else, it’s new money that they create for that purpose. So, saving in a bank, is absolutely dead money, totally and utterly. It does not produce any new economic activity.
So the ideal savings ratio is in his eyes, zero?
So there’s a really big question to follow this up. Why do we spend so much money in the UK, around £70 billion a year, encouraging people to save in secondhand shares and bank deposit accounts?
In other words, why do we encourage people to put so much money into their pension funds or into ISAs? Because that’s the amount we spend on encouraging saving.
Is this a rhetorical question or is he just being deliberately idiotic?
It’s more than what we spend on schools in England and Wales.
It’s more than we spend on the defence budget for the UK as a whole.
And yet, it doesn’t produce any net real economic worth for the country at all.
Sez you?
It will make some people feel richer, that’s without a doubt.
But is that what we should really be using government spending to do?
Or should we just be saying, “Save if you wish. Please do. We’ll provide protections to make sure that whoever you save with is not going to run away with your money.” Most certainly, that’s a job for government to do. But should we be actually subsidizing the placement of money into redundant activity, which is what most saving accounts are?
I long for a right wing government ( a genuine one) that can strip away the ludicrous pensions of the public sector and expose them to the vagaries of modern pension provision, created entirely by the Treasonous Blair/ Brown government which destroyed the envy of the world in pensions systems. Then let him spout this crap.
I don’t think so. So why are we doing it?
“I don’t think (and I have listened to both extensively) that anyone could find anything more moronic than the above passage in the work of either Alex Jones or David Icke.”
Oh I don’t know, is there a better explanation of the existence of our ruling class other than they are indeed lizard people from another dimension? They certainly don’t appear to be human…..
BiS- Why on earth would they be with the same bank?
Because it can make sense to do so.
BiS – Oh I’m well aware of what’s on offer from banks, always have been.
Oh!
Apparently, in his latest nonsense, banks can’t lend deposits out, but also UNDER REGULATION, deposits count as capital for banks.
You can’t make this up, yet he frequently does.
At least it’s all there in black and white for people to see what a fool he is.
@TMB
It’s his presumption they will be. Not saying it actually makes any difference. As far as the bank’s concerned it’s a debit against a current account & a credit going to a deposit account. Where either are coming from/going to is of little interest.
Because it can make sense to do so.
I would say it makes sense not. Any problem you have on your current account can become a problem on your deposit account. One always has to protect oneself from the activities of the people one’s banking with. Rule#1.
It’s why I have Spanish bank accounts rarely have much money in them. In this country, money can be removed from your account without permission or one even knowing about it. Often simply because say an electricity supplier or the local authority says you owe it. If it exceeds your balance, you account is now blocked for all transactions.
BiS – In the era before BACS you would have needed (ideally) Town Clearing cheques or BPs to move money with same day value and that would have had to be between two institutions within the “Walks”. 7 day notice accounts alongside a current account during the Wilson/Callaghan years made a lot of sense for both the bank and the client. This was your era so you must have been aware of this surely?
@TMB
I was aware of the restrictions & how to get around them.
It appears that Richard Murphy has gone full Joe Biden on us.
Perhaps we should take up a collection to keep him in Tena Premium Fit Maxis.
“7 day notice accounts alongside a current account during the Wilson/Callaghan years made a lot of sense for both the bank and the client.”
If you say so. Somebody I knew kept a drawer full of Deutschmarks and eventually blew his Sterling cash on a car and a deposit on a flat. As inflation took off in the Heath/Wilson/Callaghan years this proved quite effective.
What would be the modern equivalent? Don’t say “Euros” or “US dollars”.
I don’t think (and I have listened to both extensively) that anyone could find anything more moronic than the above passage in the work of either Alex Jones or David Icke.
Have you tried Karl Marx? Joe Stiglitz? Paul Krugman…?
Dearieme: If you say so. Somebody I knew kept a drawer full of Deutschmarks and eventually blew his Sterling cash on a car and a deposit on a flat. As inflation took off in the Heath/Wilson/Callaghan years this proved quite effective.
Yes, a great time to be a borrower but for a business with a predictable £ cashflow it made sense to run a current account and an interest-bearing account in parallel.
Sadly my limited experience of hot money didn’t encompass the vicissitudes of running a cat-house where fleetness of foot may be of an entirely different order of magnitude.
@TMB: I take your point about the wisdom (then) of being a borrower. Perhaps we’re about to have an interesting episode – maybe a combination of crash/depression followed by runaway inflation as governments and central banks cock up their responses.
What I was wondering about is the fallback store of value to use. What could play the role of the Deutschmarks? Gold? Would it be confiscated? Cryptocurrency? Not on your nelly.
Further than that, what borrowing could I do constructively with my widow in mind? Equity release mortgage?
@TMB
My financial experience came from being in the City. Oh those were the days! The delights of the Labour foreign exchange control regulations! (When the limit was 50 quid on forrin’ including the forrin’ element of the holiday you’d booked) Did we make a packet circumventing that one!
The Meissen Bison
June 17, 2024 at 9:55 am
Could it be that he is testing the gullibility and downright inanity of his claque? Will Ely be the Jonestown of the demented Left? Could we be close to the apotheosis of the Shi# of the Fens?
I think you’re on to something there. Certainly Jones did a lot to drive away anyone who was even slightly skeptical, which is why they ended up moving several times, eventually to Guyana.
Perhaps Murphy is attempting to drive away anyone even slightly skeptical, by writing this nonsense. Certainly OGH is probably somewhat weary of continually debunking Murphy.
I’m surprised that Murphy gets so many articles published. Is the Gruniad so hard up for columnists?
What I was wondering about is the fallback store of value to use. What could play the role of the Deutschmarks?
These days, cocaine would be a good contender, reliably, confidently & readily (in the right circles) accepted in various quantities. The price depends on the balance between supply/demand. Remarkably stable over recent years. Far more so than currencies. The price is of course set by that demand/supply calculation. Also has the merit of high value/mass.
Totally agree with you on gold. If you ever needed it they’d make holding it illegal & confiscate it (Unless you’d taken physical delivery. Then how do you liquidate? Would a market develop in small quantities of “hot ” gold?)
Surely if I buy a bunch of second-hand M&S shares I then get an income from them. I am trading the liquidity of a bunch of fivers for the income stream from a different design of paper. At the other end of the transaction is somebody who needs the liquidity more than the income stream, such as somebody like me in 20 years’ time.
By Lord Spudcup’s argument, I can sell my second-hand Northern Rock shares and get my money back.
@jgh
What Spud doesn’t understand is the “second hand” value of a share is what enables the company to raise capital from the market in the first place. If one was locked in there’d be helluva discount capital/projected earnings.
If Oscar Wilde had met Murphy, Lady Bracknell’s views on ignorance might have been quite different.
Labour foreign exchange control regulations
Why ‘Labour’? They were introduced in 1939 and kept until 1979.
What I was wondering about is the fallback store of value to use.
Ammunition. (In the USA).
For sale: M&S share, one careful owner, dealer serviced since new.
Seriously though, referring to anything as second hand implies it has less value than when new, but a share has a value and the number of owners, careful or not, makes no difference.
I understand that sometimes you have to make simple analogies to explain technical subjects, I’ve done it myself enough times, but the value of a traded share does not need an analogy let alone a simple one to explain share trading.
@bloke in spain – “money can be removed from your account without permission or one even knowing about it”
Is that just direct debit, which you have to agree to and can cancel at any time, or some other strange thing?
Calling shares “second hand” is weird. It implies that shares can’t ever be created or destroyed. The conservation of ignorance perhaps?
He’s just obsessed with money. Mostly other people’s and the fact he hasn’t got any. Which might be because he spends what should be productive time writing spiteful, envious, blogs.
“Why ‘Labour’? They were introduced in 1939 and kept until 1979.”
Because it was Labour which tightened them to an extraordinary degree. As you doubtless well know. Be careful lest you be mistaken for a disingenuous cunt.
Good quality machinery will act as a store of value in an inflationary environment. The price of new keeps going up and it drags second hand values with it. A shipping container full of new Husqvarna chainsaws wouldn’t lose you money. You might even hit the jackpot and find that in a few years time the eco-Nazis have banned the manufacture of ICE versions, and you’d have a motherlode of something that is in high demand but isn’t made any more. Cue ‘name your own price’ time’…….
My store of value is my shop and flat, but all viable government parties are vying to steal it off me.
Is that just direct debit, which you have to agree to and can cancel at any time, or some other strange thing?
If by strange you mean Spanish you have it in one. If they have your account number they can get at your dosh. The mechanics of it I haven’t the vaguest. But I know enough people had it happen
I thought that the point of gold as a store of value wasn’t for the period when things have deteriorated to the extent that the state is appropriating or banning it – it’s for the time afterwards, when stability has been restored, and you want something you can use to get started again.
For the actual period when things have deteriorated to the extent that the state is kicking your door down looking for gold, I would favour a bicycle, a Lifestraw and a very large axe. I certainly wouldn’t be wanting to hold any store of value unless it’s anonymous and easily hidden.
Why ‘Labour’? They were introduced in 1939 and kept until 1979.
Someone with better memory than me might remember. Late 60s. IMF bailout.? Economy in usual Labour shit.
(At least I remembered to close tag this time!)
@bloke in spain – “The mechanics of it I haven’t the vaguest.”
It sounds a bit like SEPA (Single Euro Payments Area) payments, which are very similar to UK direct debits. You can reverse one up to eight weeks from payment, or if it was unauthorised up to 13 months. Though the B2B variant does not allow chargeback of authorised payments.
I just googled ‘what is fractional reserve banking’ and the Investopedia article gives enough information to understand that banks use a portion of deposits to cover the loans they make – thus refuting the learned 1/3 of a professor’s assertion that banks don’t do anything with the money.
This is apparently something that the boiled potato has never thought to do.