From: "Tim" 
Newsgroups: uk.finance ie.general
Subject: Re: Banks create money, yes they do (Was:Re: Fixed-rate Loans)
Date: Thu, 22 Mar 2007 14:18:49 -0000

"Fergus O'Rourke" wrote
> ... let's stick to the point. If you can spend it, it's money.

Define "spend"...

If I give an IOU (which I write out myself) to a shop
/ trader for some goods, then is the IOU "money"?
If so, then you are saying that  *I*  have just created the "money"... ?

"Fergus O'Rourke" wrote
> After borrowing £1,000, you are in accounting terms no better
> off but you do have an extra £1,000 to spend. Your friend, however,
> has £1,000 less to spend, so no new money has been created.

...OK...

"Fergus O'Rourke" wrote
> When you borrow from the banking sytem, though, the
> £1,000 borrowed does not reduce the system's resources ...

What do you class as "resources"?  Banknotes+coins?

"Fergus O'Rourke" wrote
> ... because the loan proceeds come back into
> credit balances which can be lent again. The loan
> actually increases the resources of the system. ...

What are those "resources" again?

"Fergus O'Rourke" wrote
> ... The fact that it simultaneously increases liabilities
> by a similar amount does not serve to refute that.
>
> To suggest otherwise is absurd. It equates to saying that
> a house financed by a 100% mortgage does not exist at
> all, because the asset is matched by an equivalent liability.

No, it equates to saying that someone buying
a house financed by a 100% mortgage is no
"wealthier" afterwards than s/he was before.

> "Tim" wrote:
>>[snip] for some reason, you only want to count the "positive"
>> balances, and you are ignoring the "negative" balances.  Why is that?
>
"Fergus O'Rourke" wrote
> Not ignoring them, just saying that they do
> not change the reality of the positive balances.

The £1million house bought with a 100% mortgage is quite "real",
but does *not* mean that the owner is then "worth" £1million!