Talk:Money creation

old text at top erroneously

This article needs substantial revision:

1. Money is never created by printing. Money can be transformed into printed form by making a withdrawal at a bank, but it's not created that way.
2. Banks don't make loans against reserves. New loans, and therefore new money, are created by banks as simple bookkeeping entries.
3. Money is also created when the Fed buys treasury bonds.

See: http://landru.i-link-2.net/monques/mmm2.html —Preceding unsigned comment added by 203.118.155.104 (talk) 05:51, 30 January 2008 (UTC)

There are only a few ways money is created (at least in the US, or any economy with a central bank). Discussion in this article should be focused on these topics:

1. Counterfeiting
2. Printing money
3. The Federal Reserve and should be discussed in that article
   1. buying/selling t-bills and t-bonds
   2. changing the federal funds rate (discount rate)
   3. and changing the reserve ratio

Finally... if a history of money creation is desired, discussion over the history of 'fractional reserve banking' could be discussed here or in that article.C. Nelson 03:27, 20 March 2006 (UTC)

I disagree with your list excluding the Money Multiplier mechanism, as it does create actual currency, although not in its minted or printed variety. But I do suggest that the article should be generalized to avoid being US-centric, therefore removing much of the Federal Reserve example and replacing it with a general example portraying the actions of a generic bank and possibly the underlying connections with a generic national central bank. Only afterward specific national differences can and should be discussed. manu3d 15:02, 26 November 2006 (UTC)

Money is not currency. You counterfeit and print currency, not money. The article is a good (if somewhat vague) intro to money creation. A very small portion of money is in the form of currency. The US Mint does not create money, it produces currency, a useful medium for small money transactions. This is why the Mint doesn't care that it costs more to make a penny than one cent. The penny can be used thousands of times in order to represent thousands of cents.

Ummm... perhaps you mean "Currency is not the only form of money. You counterfeit and print currency, which is one form of money." But in any case, this issue certainly hinges on what is defined as money.

Many would contend (such as Ludwig von Mises) that checks aren't money, but rather "money substitutes." This "money multiplier" effect basically consists of counterbalancing assets and liabilities listed in bank accounts. Now, besides paying with cash, you can pay by creating new obligations or canceling out old obligations. It doesn't necessarily result in ten times the amount of "money" freely circulating in the economy (with 10% reserve requirement) as most of the time the "money" stays right where it is, in the bank... and if it doesn't stay right where it is, if everyone in the country starts issuing checks left and right, up to the full balance of their accounts, then the smaller the banks' reserves, the more strain they're under, and the greater the likelihood that they'll fail to meet their obligations.

Without banks, in a little closed system between three friends who are completely broke, we can see "money creation" in effect, along with a "money multiplier." Al has no money, but he likes Betty's bike, so he offers to pay her later for a bike today. He doesn't even write her an I.O.U., he just says "I'll pay you later." Betty agrees. Now Betty has a 100 dollar asset, even though no one in the economy has any money! She decides to spend her money. She goes to Carl's shop and buys 100 dollars in groceries. He's glad for the business, as he too is flat broke. Betty doesn't pony up the cash right away, she just says "I'll pay you later," but Carl trusts her. Now Al, who has a carrot garden, brings in a heap of carrots to Carl's shop looking to make a deal. "I'll sell you these carrots for one hundred bucks," says Al. "Sure, I've got a hundred bucks coming to me real soon, so I'll settle up with you later." "Great, 'cause I need the money to pay for my bike." Now three people have a $100 asset each. True, they also have a $100 liability each, for a net balance of zero, but the economy is apparently working. Goods are being produced and taken to market. People are making exchanges, so that the people with differing values profit from the trade. They can all settle up as soon as someone issues an I.O.U., or settles their debt in another way, by an exchange of goods or services, and the settlement passes down the line. If there was a bank in the middle, then these people wouldn't have to trust each other, they'd just have to trust the bank, and the bank could make a profit on the difference between what they charge for loans and what they pay for deposits. Numbers would be juggled, and everyone would be happy until someone demanded cash. But the bank might easily placate them by issuing a check, taking it back in deposit, canceling a liability against an asset, and magically all the obligations and money substitutes disappear.zadignose 02:46, 23 August 2007 (UTC)

You have to see where the money originates. Nobody in your example has the right to create accepted currency. "I'll pay you later" is not a universally accepted currency and, eventually, has to be replaced with money. Money is created at the bank. What you describe in your post (including the example) is how money circulation would work, if banks were loan banks. But today, banks are a mixture of loan and deposit banks. To understand the distinction, look at the example of the goldsmiths in 17th century England (who were deposit bankers): If you were to deposit one pound of gold at a goldsmith, he would give you a piece of paper that is nothing more than a voucher (or receipt) that you redeem against the gold you have deposited. However, instead of going back to him and picking up the gold to pay somebody, you could just give them the voucher, which turns these vouchers into a form of paper currency. Soon, the goldmiths realized that only a small percentage of the gold was ever redeemed at any given time. So, they gave out additional vouchers and paid for a service with a voucher that represented the same gold that somebody already had a voucher for (Note: This is not the same "amount" of gold, it's the same gold!) So, if anybody deposited one pound of gold, they might give out, for example, 5 vouchers that each represented one pound of gold, and thereby increasing the money supply (the paper money in circulation) by the representation of 4 pounds of gold that didn't actually exist. In the 19th century, loan banks have been awarded the rights of deposit banks, which has led to the fractional reserve banking we know today. However, the fact that this is now legal doesn't make it less fraudulent.

What makes our system so complicated is that paper has now replaced gold (meaning: the gold standard has been abolished) and you have paper representing and "backing" paper (or numbers on a computer backing paper, if you will). Hence the importance of the distinction of what actually constitutes the "gold" and what the "voucher" (the "monetary base" and the "money supply" as they are called in England).

The Wiki page on central banks mentiones this under "reserve requirements": "The money deposited by commercial banks at the central bank is the real money in the banking system; other versions of what is commonly thought of as money are merely promises to pay real money. These promises to pay are circulatory multiples of real money".

The creation of money (for the purpose of this Wiki article) is an increase in money supply (as opposed to the "monetary base", i.e. the deposits at the central bank).

I highly recommend Murray Rothbard's book "The Mystery of Banking" (available here You might want to "Save target as..."). It explains the process of money creation very well, and also gives the example of goldsmiths in greater detail. Dngrs 08:21, 3 September 2007 (UTC)

Errors

In the last paragraph of "An example of the creation of new money in the USA" -- It says: the same process also runs backwards - Federal Reserve may sell Treasury securities it holds as assets to primary dealers, taking money out of circulation and reducing money supply. Should this not be buy. —Preceding unsigned comment added by Ossworks (talk • contribs) 15:40, 31 March 2008 (UTC)

No, it should be sell. It sells the securities for money (cash or reserves), which takes money out of circulation.--Gregalton (talk) 20:25, 31 March 2008 (UTC)

Added Discussions

We must add to the equation the currency drain ratio (the propensity of the public to hold cash rather than deposit it in the banking system),the clearing house drain (the loss of deposits from the system due to interactions between banks), and the safety reserve ratio (excess reserves beyond the legal requirement that commercial banks voluntarily hold - usually a very small amount). Also, most jurisdictions require different levels of reserves for different types of deposits. Foreign currency deposits, domestic time deposits, and government deposits often have different cash reserve ratios.

Disputed

See http://en.wikipedia.org/wiki/Talk:Fractional-reserve_banking

Money is also created by the central bank in converting foreign currency to domestic currency. —Preceding unsigned comment added by 41.182.227.244 (talk) 14:32, 16 September 2009 (UTC)

I agree with the dispute tag. This article goes completely against modern (post 1920) economic theory. Money is more than coins and banknotes, it includes electronic money, and bookkeeping entries - anything that represents a liability of the central bank. Not being allowed to talk about the Fed??!! Obviously something is wrong here Smallbones 15:01, 17 September 2006 (UTC)

Could you please explain your point of view and why do you assert that the article goes against post-1920 economic theory? manu3d 14:05, 26 November 2006 (UTC)

I agree with the dispute and suggest the author insert the word 'banknote' before the word 'money' to make the phrase 'banknote money' with the added rider about credit money which is a very significant proportion of money in use. IRG 23 November 2006

I also think that it is important that a discussion about credit card debt be included; I'm not sure if this is money "created" or if it is actually money held by and paid by the bank issuing the card, though. (Meathelmet, 11/26/06)

Credit Card Debt is just one facet of the Money Multiplier mechanism. I'd suggest to reframe the whole article and its examples from the point of view of a single bank dealing with individual customers, and then explain the bank's connection with a generic national bank along similar lines. Doing so, any kind of non-cash withdrawal (money transfers, plastic money) is properly contextualized. What you do think? - manu3d 12:42, 29 November 2006 (UTC)

--- Credit card debt is not -new- money and is therefore not created and should not be included.

What makes you say this? (And, please sign your comments). I just got a new credit card with a spending limit of £500. If I buy goods worth £500 why is that not new money? The receipts of the shops add up to an extra £500 which they would not have without my new credit card.--Janosabel 21:44, 11 July 2007 (UTC)

I must support Janosabel 100% here. Credit card debt is no different from any other kind of debt. The credit card company creates money which it is then generating revenue from. Standard money creation. MartinDK 10:34, 16 July 2007 (UTC)

Credit card debt is not money creation. When you make a credit card purchase the card issuer has to pay the shop or business immediately and cover this payment using their existing funds, they later reclaim this money from the carholder. As such they are lending out money which they already have and not creating money.--81.86.104.84 (talk) 22:44, 14 January 2010 (UTC)

Credit card debt is definitely "money" creation. Correct, it is vague if it is new "printed money" creation. One should wonder, does extensive use of credit cards, increases "money" circulation or not? I believe it is. Also, I don't believe that large companies send the boy Monday morning to bring the cash from the Bank. Sorry for the style of writing, I am trying to be clear. — Preceding unsigned comment added by Alexopth1512 (talk • contribs) 22:27, 17 April 2011 (UTC)

Agreed. When you get a zero balance $5000 credit card, those dollars are your dollars to spend as you wish. Credit card debt is often securitised so that de facto new deposits are created in favour of the holders of the securities and in return the bank gets the full amount of deposits available for more lending, and under Basel only requires to have capital for a small fraction of the full amount of lending - the bank is levered with respect to its capital. Under Basel the portion of unused Helocs, credit cards and other unused lines of credit are not counted as loans and do not require any allocated capital against the agreed dollar amounts.User:Andrewedwardjudd|Andrewedwardjudd]] (talk) 09:32, 19 April 2011 (UTC)andrewedwardjudd

9/8/07. I'm not an expert on this, but would it help this discussion to distinguish - as the govt. does - between M1, M2, and M3 "money supply" ? —Preceding unsigned comment added by 204.52.215.27 (talk) 15:42, 8 September 2007 (UTC)

Money Multiplier

In any fractional banking system this is the primary method of money creation. M1 (currency + demand deposits) is almost insignificant when compared with M2+. What does that have to do with the multiplier and the creation of money? The banks create money by loaning out excess reserves and the process repeats its self until (in a perfect world devoid of leakage etc..) the amount of money created is Deposit * (1/required reserve ratio). Further more, in addition to printing money, the central bank often uses drawdowns and redeposits. For example in Canada all of the Chartered banks hold accounts with the BOC, the BOC then deposits or withdraws money (which it can create) into these institutions and it cycles through the banking system. Curiously, Canada does NOT have a required reserve ratio as per the Banking act of 1992 -to compensate the BOC is the lender of last resort.

What i'm trying to say is that the money multiplying effect of the banking system IS the primary method of money creation.

== Agree with the dispute. Money as is known in all of economic science goes beyond the actual amount of minted or printed currency, and is defined as including money created by the system's banks. It is a bit of a semantic discussion, but the common use if the word money includes money created by banks. As in "how much money do you have?" when answered by "10,000 dollars", means your money in the bank, not the money in your pocket. (Financeeditor 00:40, 16 April 2007 (UTC))

Loan Payback

"As a loan is paid back, more commercial bank money disappears from existence than was created (assuming an interest rate above zero). " Surely this is wrong? The borrower must pay back interest + loan to the lender. When the capital sum is paid back the original loan is annihiliated, but the bank retains the interest. So this line should be deleted. OK? — Preceding unsigned comment added by Doc Richard (talk • contribs) 21:27, 4 December 2011 (UTC)

Lets add more here

We don't see a discussion about "high powered money" that allows the creation "out of thin air", ten times the reserves depositied with the Fed as bank capital. This makes a multiplier approaching 100 times the orignial amount. Many deposits like checking accounts don't bear interest, plus bank float apears in two places at once and is counted twice as reserves for both banks. Through holding companies banks can eliminate the reserve requirements. under $2M requires no reserves. Under $45M requires only 3%. Coin, of course, is good money issued at no interest and doesn't count. We would have prosperity and little debt if it was all coin.

We have skipped entirely the discussion of the flip side when money is extinguished. When loans are repaid at comericial banks money dissapears. When the Fed gets repaid by the Government or when the Fed's Open Market Commitee sells bonds money disappears big time because commericial banks have to call laon to get their reserves in line. But wait, while the original pricipal money is gone, the obligation to pay the interest still exists. And guess what somebody forgot to create anymoney to pay the interest with. Seems like an ingenous way to collect all the wealth of the world to me.

There is a good video on the subject if you Google Money as Debt.

Let not forget all the other private money like travel checks, prepaid phone cards, Disney Dollars, etc. —Preceding unsigned comment added by 69.138.20.209 (talk • contribs) 05:16, 20 May 2007

I think following questions should be addressed in the article:

-who is the owner of the newly created money? -which fraction of the newly created money is equivalant to the obligation to pay back the interest? -when the economy is growing through the creation of profit, how this growth is distributed throught the money creation? or can be the total profit created in a certain period of time higher than the obligation to pay the interest?

money base

the article does not discuss who creates money, and how the regulation of the finance industry inluences this.

If all lending is forbidden, or if all lending need a 100% reserve, then 100% of the money creation is made by the government and the central bank who then have a monopoly on money emission.

If no reserve are required, if the financial market is loosely regulated, then private agents, bamks or investors, create money at will, close to 100% of the money creation is made by private agents.

PLease not that the government can still control the amount of private money creation through the interest rate policy.

I think it would be very interesting to provide historical data on the ratio Base money/other money agregates in the USA and other countries, so as to show how historically the states have progressively privatized the money creation business.

Article needs a major revision

This article is all about precious metal coins and bank notes, which account for less than 10% of the US money supply. The minting section has no relevance in today's world, e.g. what percentage of the face value of coins is in precious metal coins? In the US, I'd guess it rounds to 0.00%, and almost the same with almost all other countries. 0.00% times 10% = irrelevance. Smallbones (talk) 18:56, 9 January 2008 (UTC)

On the example of how money is created in the US, and the precise point where money is created

(Cf. point 5 in the list, "This lending of money that it has on deposit is the precise point at which new money is created, because the depositor still has his money, ...")

The statement "the depositor still has his money" is in my opinion a kind of a short cut of the true fact. The depositor has NOT got the money anymore, rather he is in possession of the bank's promise to repay him money. (In case of a money transfer, the amount would have been deducted from the sender's bank's cash position.) Thus (net) money is not created, as the bank got in possession of the actual money, which is proven by the fact that the sum of total deposits and total loans in the list below that paragraph net out to the original depositted (physical) money.

It is of course true that by the prevailing mechanism implicitly the same money comes to use as collateral for loans of value a multiple times of the money's nominal value -- clearly increasing the buying power in the economy; this effect however is not appropriately coined as "money creation". (To give a further clearifying analogy: If a company owns 10000 USD and prepares a statement with many asset and liability positions, then even though the sum of absolute values of all these figures exceeds 10000 one would not say that the company has created money. These are just numbers.)

ThomasP, 24.3.2008 —Preceding unsigned comment added by 217.7.223.62 (talk) 16:31, 25 March 2008 (UTC)

Need for a Merge/Update/Mesh Between Different Articles

Both fractional reserve banking and Monetary policy of the USA have similiar information in this article:

• The section How It Works in fractional reserve banking is an update form of Money Creation Through the Fractional Reserve System, but does not include Deposit Multiplier Example nor Types of money in the fractional reserve system

• The section How Money is Placed into Circulation in Monetary Policy of the USA is similar to An example of the creation of money in the USA but is currently under heavy dispute.

I propose one of two options to remove duplication across articles:

1. Delete these sections on this article and provide an appropriate link to the other articles
2. Update the appropriate sections using the other articles information and replace the information with a link to this article.

I have already asked a question about this on the talk page of the fractional reserve banking article. --EGeek (talk) 00:06, 13 January 2008 (UTC)

Don't delete this page! I only just discovered this page after having numerous fights on the fractional reserve banking page. A major problem at the FRB page is that it contains a rather muddled mix of ideas which are partly "FRB in theory" and "money creation as it goes on in the world today (which can scarcely even be described as FRB)". This page is the perfect place to make a clean break from the FRB page and become the definitive source of information about "how money is created in the real world today".

Note that the "reserve requirements" in many countries is *zero* and the restrictions on money creation are now based entirely on capital adequacy instead. Even in countries which still have some reserve requirements for some types of loan, they often have zero requirements for others. Reissgo (talk) 19:16, 10 November 2010 (UTC)

Need clarification

Under: An example of the creation of new money in the USA

4. The government deposits the check in its own account.

Somebody needs to clarify "its own account" - which bank is this ?? —Preceding unsigned comment added by 65.202.103.25 (talk) 19:51, 29 April 2008 (UTC)

Money Destruction

When the money that is created with a loan instrument is destroyed, is it just the principal, principal + interest, interest only or what? 74.78.162.229 (talk) 02:05, 8 July 2008 (UTC)

I meant the above as a pointed and essentially rhetorical question. The English language contains the truth of this matter in the relation beween the expressions "Making Money" and "Money Creation". See also "usury". Lycurgus (talk) 01:44, 25 July 2008 (UTC)

To be clear, my conviction is that the labor theory of value is the essential underlying truth. Socially useful labor is the essential thing that creates the value symbolically represented in money, that truth expressed (paraphrastically) by Adam Smith in his assertion that the Wealth and Power of Nations is embodied in their ability to produce goods and services. It is the exercise and application of socially useful labor that creates the real underlying value. The creation of the symbolic form which commands the real underlying form in exchange is an artifact of the prevailing social order. In primitive societies exchange occurs directly between the real producers and the symbolic form of value does not as yet exist. It is the epitomé of commodity fetishism to see the money commodity as the real form of value rather than the thing it represents. The symbol (e.g. gold) in this case comes to be considered the real thing instead of the thing represented. 74.78.162.229 (talk) 02:06, 25 July 2008 (UTC)

Or considered to be a magical rather than a (merely) symbolic representation. Whence the analogy to fettishes in primitive societies/belief systems, e.g. voodoo dolls, where the representation of a person takes on magical properties. 72.228.150.44 (talk) 15:02, 29 November 2008 (UTC)

I have searched extensively and found nothing reliable to support the idea that the money created through interest on loans is destroyed when the loan is paid back. So, without objection, the statement: "The destruction of money created through loans occurs as the loans are paid back (deleveraging)[citation needed]" should be removed. Also, the link to deleveraging dose not imply anything about the destruction of money.172.130.206.193 (talk) 04:26, 9 June 2009 (UTC)

The principal is supposed to be destroyed, not the interest.88.193.104.207 (talk) 13:23, 11 June 2009 (UTC)

See that current text only refers to the destruction of currency not general money, so the objection upon which I started this thread appears to be mooted. FTR though, the principal isn't any different from any other part of the sum as general money, it is abstract value which is neither created nor destroyed but only assigned as I noted above, i.e. socialized in the so-called "real economy", that is to say socialized per the current dominant mode of production of said underlying value, that in turn an extension of the basic kind of social organization under which the real values produced are assigned their socially approved relative numeric values or claims made on future production. 72.228.177.92 (talk) 11:47, 30 May 2010 (UTC)

The term "destruction" of money in this article doesnt have to do anything with lets suppose "real" market asset and values destruction. With the term destruction it means the money removed from circulation, printed or not. Of course new loans are always issued and money "recirculates" and unless money is printed you cant identify the money that was assinged to you, can you? The destruction concerns principal AND interest, this is what you pay to the Bank isn't it? And yes if everybody wanted to pay back their loans there is NOT enough money circulating (and i dont mean only the printed money) Alexopth1512 (talk) 21:55, 26 April 2011 (UTC)

Generally speaking when you get a bank loan, you do not get a cash loan but instead get a new amount of broad money created by the banking system so that somewhere a new deposit is created for that loan in the banking system. Once the loan is repaid then this amount of created money no longer exists. For example the broad money deposits you have earnt from the economy pass to the bank to repay the loan and then these broad money deposits no longer exist. The interest comes from existing money or other created money that is not 'destroyed' when the loan is repaid. The idea that there is insufficient money in circulation of all types to repay loans is one that is not supported by evidence. In a manner of speaking a bank is like a plumber. It offers a service and the fees/interest come from the economy and existing money. The power of the loans goes outwards to the economy to do work today, rather than in the future, and then in the future this power is returned to the bank for a net zero result so that the banks liability, caused by their money creation which claims their assets, is ended.Andrewedwardjudd (talk) 10:39, 27 April 2011 (UTC)andrewedwardjudd

Hmmm, I dont know if there is any source of created money other than banks (commercial or not) in the quantity it is created there. But in reality you cant separate private and public sector (this is an opinion of mine). So if money circulating is only created by banks, when loans are created the interest amount is not created. So you get the extra money to pay you loan from other sources, most probably other created money by other banks. I guess if i find a goldmine i will create money and central bank must print more money. For the system to be stable, you must have growth (more loans) that is bigger than the average interest rate, so more loans create the difference of the demanding interest amounts. You DO have a point that when a loan returns to the bank, logistically the amount is not destroyed, it is the profit of the bank. This profit comes from money created from other loans. However, what I mean is that since interest amount is NEVER created, if ALL loans should be returned NOW there is no sufficient amount of money. —Preceding unsigned comment added by Alexopth1512 (talk • contribs) 13:45, 28 April 2011 (UTC)

You dont seem to have understood what i was saying. Loan monies are not profits for the banks.

A private bank is like you. You can create a liability for you(that is against your advantage), that you give to me(that is for my advantage), that i can use as loan money to buy something from your father if your father is happy to be owed money by you. You are then no longer liable to me but are now liable to your father. I just pay you a fee for that service. If your father wants 'real money' then you are liable to provide it. If i repay the loan then the form of your liability is changed because now you are only liable to repay your father with what you already possess. So far the only profit you have made is the interest, but you do have the use of the money . Once you pay your father you have no liabilities and only the interest profit.Andrewedwardjudd (talk) 14:26, 28 April 2011 (UTC)andrewedwardjudd

Perhaps we might understand the destruction of debt money from its creation. A bank loan is created by a bank borrowing from the deposit accounts and increasing the borrower's balance. The loan then becomes money because the increase in the borrower's balance is recognized as money by virtue of the bank being part of the banking system. This money is then distributed by the borrower by using the increased balance, but it is not destroyed. The borrower's payments, like the sale of the loan contract, give the lending bank the equivalent value of the loan in existing money, so they do not destroy the debt money the loan created. Indeed, as part of the bank's reserves, loan payments increase its ability to create more debt money. Nor does a default destroy money; it only prevents the transfer of existing money from the borrower to the current holder of the loan. It is not to the payment or lack of payment that we should look, but at the internal accounts of the bank, even if those accounts are not explicitly kept by the bank.

A bank's own activity can be separated into two accounts: a deposit account, similar to other depositors' accounts, and a loan account. The loan account never holds a positive balance but rather is a negative balance representing the unpaid principal on the various loans it has made. When the loan is made, i.e. when the debt money is created, an equivalent amount is deducted from the loan account balance so that the total balance over all accounts remains the same. At the same time, the debt money is converted into general money so we do not care how it is distributed afterwards. The money supply has been increased by the loan amount while the bank's loan account holds the equivalent 'anti-money'.

What happens then with a loan payment is that general money is received by the bank with the interest going into the bank's deposit account, while the principal is converted into debt money and then consumed by the same amount of 'anti-money' in the bank's loan account. Another way to think of this is that the bank is repaying its loans from the deposit accounts, including its own. Similarly, when the loan is sold to a third party, the proceeds from the sale are divided into interest and principal, with the amount of the principal being converted into debt money and then consumed by the loan account. On the other hand, if the loan is transferred, then this operation is preceded by the new lender borrowing from his depositors the amount needed to purchase the loan from the original lender.

Taking this a step further, we see that a default, write-down or write-off of a loan will consist of the bank withdrawing money out of its deposit account to consume a portion or all of the remaining principal in its loan account. When a bank does not hold a sufficient balance in its deposit account to do this and cannot stall until it does, it can, in the proverbial phrase, 'beg, borrow or steal' the requisite funds. In more modern terminology, the bank can get a bailout, increase its inter-bank borrowing or assess new and spurious charges and 'service fees'.

Since these are all internal, hypothetical accounts we are talking about, they may not reflect the bank's explicit bookkeeping. Thus, the aggregate listing of balances given by the banks may not give an accurate accounting from which to calculate the debt money supply. Fortunately, the negative of the balance of the possibly hypothetical loan account is easily counted by adding the principal outstanding on all active loans at each bank. Aggregating these balances gives the negative of the total debt money supply. Therefore, the total debt money supply is the total outstanding principal of all active loans in the banking system. When that principal increases, the debt money supply expands and when it decreases the debt money supply contracts. The determination of the amount of debt money supply creation and destruction ends up being an unnecessary complication when measuring the debt money supply. --InpoliticTruth (talk) 20:01, 24 August 2011 (UTC)

Second mortgages and money supply

I feel there should be a discussion around how second mortgages affects M0 money supply. Commercial bank money created through the multiplier in fractional reserve banking shouldn't affect the market as long as it is only used on real estate and loan installments (i disregard interest in this case), but in the case of a second mortgage the money can be used on anything. If these second mortgages are repaid, the only effect is a 1-30 years boost on the money supply. Whenever this turns into a foreclosure / bankruptcy however, the first mortgage is repaid but the second remains in the system. In these times, couldnt this have a significant effect on M0? --Aravn (talk) 09:58, 5 December 2009 (UTC)

Competitive Minting???

After reading this article I spent a little time trying to find historical examples of competive minting. The only thing I have found resembling competetive minting is competition between city states or smaller states in the middle ages, which is very different from the kind of competetive minting described in this article. I think this part of the article might be a complete fiction, or if such minting has ever existed then it was in a far more limited form than minting by governments. Perhaps the article could be changed to reflect this, as it is misleading in its current form.--81.86.104.84 (talk) 22:49, 14 January 2010 (UTC)

The correct referent of this is the contractural relations between the state and the private enterprises, normally purveyors to the Crown, that produced the actual currency. The monopoly on general money is more or less identified with the state power and has been throughout civilized history, so it's only the production of speciæ by different shops that are referred to and I think you should be able to find a fairly rich history behind that. i.e. in those places and times where the state didn't also monopolize the actual production and distribution of the currency. 72.228.150.44 (talk) 01:26, 23 January 2010 (UTC)

Of course in the current period, with the creation of exotic and derivative forms of money, in a case like that of the United States, a relatively small portion of the total effective "money" supply is state created. 72.228.177.92 (talk) 18:10, 12 April 2010 (UTC)

article should either focus on U.S. money creation OR expand

This article should either focus on "money creation" in the U.S. only OR it should expand and provide information or links to differing money creation systems such as "the gold standard" or "lawful fiat", etc. If the latter is chose, the article could provide a table of countries and what "money creation system" each uses. The article is misleading in its current form and suggests that all countries in the world use the U.S. fractional reserve system. Also, this article is also misleading in using the IMF 20% reserve requirement as an example when the article clearly references the U.S. system on the most part. I think this article needs a bit of review on these things. In it's current form it can be misleading, especially for people who are just learning about this subject. --Mozkill (talk) 20:06, 21 September 2009 (UTC)

Fractional reserve banking is almost universal. The USA is not very special in this respect. (although certain fringe beliefs about economics may be fairly common in the USA but rarer elsewhere)

Do you have any examples to the contrary? If so, I'm sure the article would benefit from well-sourced additions.

Similarly, in the 21st century, few countries have much interest in tying their currency to one particular shiny metal.

(I moved your comments to the bottom of the talkpage, per convention. I hope you don't mind - I didn't change the content at all).

bobrayner (talk) 11:03, 3 August 2010 (UTC)

What about work? Production and other value adding?

Doesn't work also create money? E.g. you take some wood make a chair and sell it. Haven't you cretaed money worth the diference between materials, labour etc and the selling price?

If so can someone who understands this please add to the article. If not cn someone who understands also please add to the article as a common misconception. Thanks —Preceding unsigned comment added by 182.239.160.54 (talk) 13:35, 8 September 2010 (UTC)

No, work doesn't create money because money must already be in existence to pay for the chair. At the very least, one could talk about added value, but not money creation. --2.80.42.207 (talk) 15:19, 12 January 2012 (UTC)

Balance Sheet Operations for creating money

I would like to see the process of "creating money" in today's banking system explained and clarified through simply listing the balance sheet operations in which a bank records the process.

This should take the following form for the creation of "bank money":

1) Balance sheet of commercial bank in t1 (before creating new "bank money")

2) Balance sheet of commercial bank in t2 (after creating new "bank money")

3) Comparison of balance sheet in t1 and balance sheet in t2 with respect to changes in assets, liabilities, and net assets (equity).

And the following form for the creation of central bank money:

1) Balance sheet of central bank in t1 (before creating new central bank money)

2) Balance sheet of central bank in t2 (after creating new central bank money)

3) Comparison of balance sheet in t1 and balance sheet in t2 with respect to changes in assets, liabilities, and net assets (equity).

Since there are different forms of central bank money, I would like to see the balance sheet operations for creating

a) Central Bank Notes (not the creation of the paper notes, but the balance sheet operations of releasing them into the economy)

b) Electronic Central Bank Money

c) Coins (again, not the production of the coins themselves, but the balance sheet operations of releasing the into the economy)

a) and b) would also clarify the process of creating so-called "fiat money".

Should not a simple description of what banks actually do when they create money be the very least we can expect from an article attempting to clarify how money is created? There should be no mystery in simple balance sheet operations. Thanks, folks Thewolf37 (talk) 12:37, 26 September 2010 (UTC)

Implications about money supply changes

This page talks a lot about how money is created, but it says very little about why anyone cares. IE - what are the implications of changes in money supply. Clearly an increase in money supply is correlated with inflation, but that isn't always true. Are there other implications? It seems silly to talk about the "money supply" without assessing what it means to change the supply of "money".

Does anyone have any ideas for an "implications" section like this? Fresheneesz (talk) 01:36, 20 November 2010 (UTC)

Step A to B: the other 80 of the deposits

You're missing a key component to Re-Lending: The other 80 of the original deposit can also be used to fractionally lend money into existence making the total amount of money that can be loaned into existence from step A to B, based on a 20% reserve rate, is not 80 but 400. Of course, if that depositor requests any money back, the bank will be over their reserve ratio.

Your table should look more like this (with a 25% ratio):

• A 100 400 500
• B 400 1600 2100
• C 1600 6400 8500
• .....

Why is it that most people seem to think that some how, magically, only a fraction of deposits become reserves? By using the reserve ratio for this fraction, it's only perpetuating a misconception and biasing wikipedia. The reserve ratio only has to do with the amount of money banks can lend into existence, not how much of a deposit becomes reserves. For a bank, the whole deposit becomes new reserve, not some little fraction of the deposit. —Preceding unsigned comment added by Javalizard (talk • contribs) 21:27, 22 November 2010 (UTC)

Re-lending: Step A

If you have 20 in reserves with a 20% reserve ratio, the amount of money that can be loaned into existence is 20/0.2 or 100. This table shows subtraction of the original deposit by the reserve to create tho money loaned into existence (for you math types, 100-100*0.2=80) When it should be division: 20/0.2=100. See the previous section. The math should be 100/0.2 for the total amount of reserves that can be created being 500.

A short passage was added to address the maximum of each step instead of just the example. People make wild assumptions about how initial deposits are then converted to reserves by some reserve ratio based on the example. The example is just that and doesn't address the maximums. Would some of you stop deleting the passage on the maximum relending in each step based on your false ideas derived from the example? It is rather crafty that people keep imposing their false ideas of how relending works. You are stopping others from understanding the process by imposing your own limited and false view of relending. If you look at the math in the example, they don't even use the money multiplier properly between the reserves and the relending amount created, how can anyone thus assume it is correct or meaningful in any way? The example doesn't even say maximum amounts any where. The issue was un-addressed before the passage on maximums was added.

There are internal discrepancies with how the bankers describe the system working and what their equations actually do.

—Preceding unsigned comment added by Javalizard (talk • contribs) 16:10, 23 November 2010 (UTC)

The process of money creation in a fractional reserve banking system is elementary. Suppose Bank A has 100 in assets. If the reserve rate is 20%, the bank must retain 20 in reserve and is free to lend 80. If that money is deposited in Bank B, it must keep 16 in reserve and is free to lend 64. If 64 is deposited in Bank C, it must keep 12.80 in reserve and can lend 51.20. After just three steps, the total money created would be 80 + 64 + 51.20 or 195.20. The money multiplier at this stage would be 195.20/80 or 2.44. If the process is continued indefinitely, the money multiplier would be 1/0.2 or 5 and the total money created would be 5 times 80 or 400. Virgil H. Soule (talk) 03:12, 28 January 2014 (UTC)

Re-lending: A better description of the chart

A much better description of the chart would be for an initial deposit to reserve conversion rate of 20% and a money multiplier of 25%. — Preceding unsigned comment added by Javalizard (talk • contribs) 18:33, 23 December 2010 (UTC)

Please stop reverting the relending section to show improper math

I'm going to ask politely that people stop calling the relending section original research when it is a summation of facts on the same page in a reordered fashion, plain mathematics, visual displayed on a chart in the same page, or pulled from a related page, such as money multiplier. When someone can explain to me how you get reserve ratio of 20% when you divide 20 / 80, then you can keep your edits that suggest the relending series original text doesn't need clarification. It seems extremely clear to me that 20/100 is 20%. The original text even states that it is a 20% reserve RATE. How obvious is it to people that 20/80 on the other hand is a 25% reserve ratio? The section on the money multiplier even discusses how it is calculated. So, I calculated it! People are removing my edits because they don't understand math. These undos are an affront to the reality of math everywhere. I find this kind of wikipedia behavior reprehensible. Can we do something about these disinformation users? Javalizard (talk) 10:44, 30 December 2010 (UTC)

Seriously, I was just looking at the section on relending trying to understand what it was about the math that was so difficult. It even states how the reserve rate and reserve ratio are computed in the example! How much more clear does it need to be before you stop calling it OR? Javalizard (talk) 10:51, 30 December 2010 (UTC)

You need to properly cite the chart, you can't just cite another wikipedia article. Also I'd like to see your calculations; what you've been posting here is difficult to follow and the numbers you have don't sound right. Voiceofreason01 (talk) 23:16, 30 December 2010 (UTC)

The chart is properly cited from the money multiplier page. Reference 11 is from the same page. Javalizard (talk) 00:47, 31 December 2010 (UTC)

I'll also add that that table is visually displayed in the graph below it in the section money multiplier. Unsourced is verifiably incorrect. Javalizard (talk) 00:48, 31 December 2010 (UTC)

As if [Wikipedia:Verifiability|citing another wikipedia page] wasn't bad enough, you've been editing that page too. Are you trying to "cite" your own edits to wikipedia articles? bobrayner (talk) 01:13, 31 December 2010 (UTC)

No, I am not citing my own edits. I am clarifying. The money multiplier is "maximum amount of money commercial banks can legally create for a given quantity of reserves" So if the reserves of 100 are 20 and are expanded to 80 then 80/20 gives a money multiplier of 4, a reserve ratio of 25% and a reserve rate of 20% Stop trying to confuse people. Javalizard (talk) 01:36, 31 December 2010 (UTC)

You you people stop calling the relending section Original Research! Showing ppl how the equations work by changing the numbers they use is not original research. If I was showing original equations or using the equations to produce some other abstract mathematical result based on some set of obscure facts, that would be something else, but no one has shown me how this is original research nor how any of the reversions make mathematical sense. I've found all my facts in other places in the world and here on the wiki and I've linked everything together so you can see that if you do your research, it's not original research. For the love of god, what is it that you don't get? Javalizard (talk) 04:11, 31 December 2010 (UTC)

You cannot cite another wikipedia article. If you want to use the chart here you MUST bring the sources over from the other article. I would do the work for you except your calculations don't appear to be factually correct and you refuse to clarify your position or post your calculations. I also have WP:WEIGHT concerns about including the chart in this article because it lacks the context provided in money multiplier. Voiceofreason01 (talk) 18:28, 31 December 2010 (UTC)

My position is extremely clear in what i wrote in the article. The mathematical progression of feeding the numbers back into the same equation on the same page, as described, is listed, the numbers are listed. If you can't see the pattern in this "100 is expanded to 400, 400 to 1600" followed by (100, 400, 1600, 6400, 12800....) that's not my fault. Those numbers are right in front of you. Javalizard (talk) 18:03, 4 January 2011 (UTC)

Personal attacks in edit summaries

Javalizard, please stop attacking other editors in your edit summaries. It won't make people take your ideas seriously. It might be a good idea to seek consensus on the talkpage before making these changes. bobrayner (talk) 23:19, 30 December 2010 (UTC)

Apparently you don't think it's appropriate to point out in edit summaries that "they computed 80/20 to equal 5 thus i reverted their edits." Since when is calling a spade a spade an attack? You may not be comfortable pointing out logical flaws in other peoples' thinking in comments as reasons for edits, but I think it good to point these things out. Edits are made by people for reasons. The people and reasons should be pointed out in our grand discussion that is wikipedia. no? Javalizard (talk) 00:35, 31 December 2010 (UTC)

Please don't try to twist words even further; it merely discredits you further.

The personal attacks are visible in the history. "ppl that can't do math", indeed, and pretending that anybody who disagrees with your WP:OR is incapable of simple arithmetic. "just in case people cannot connect the dots in the chart themselves". And then there's "Lawrencekhoo who can't figure out that math makes different equations have different results".

Please stop attacking people. If you really believe the stuff that you're adding to the article, show us a good source. Rhetoric is no substitute for references. bobrayner (talk) 00:41, 31 December 2010 (UTC)

I'm going to point out who did what. If you don't like being called out on 80/20=5 then i suggest you don't make the edits. Javalizard (talk) 01:10, 31 December 2010 (UTC)

Please stop pretending that this is a matter of simple arithmetic. It's a problem of a large block of WP:OR. Pretending that people who disagree with you are innumerate really doesn't help your case. It really doesn't. bobrayner (talk) 01:18, 31 December 2010 (UTC)

My comment that "just in case people...." was referring to all the zillions of internet users out there that may not be able to get it because, clearly, this is a difficult concept for most people to get. I'm using your misunderstanding of the topic to make the section as great as possible and to address all the concerns that you have about my passage. Your inability to understand the difference between the reserve rate and reserve ratio shouldn't be my problem but ppl keep claiming it as OR, which is incorrect. Javalizard (talk) 01:28, 31 December 2010 (UTC)

Where do you get the number 419430400 from? Volunteer Marek (talk) 02:04, 31 December 2010 (UTC)

Computed by self-iterating the same exact mathematical concept in the sentence above. It's called Mathematical induction. Because the base case is same as the inductive step it is a mathematical process, not research. I fail to understand how doing this (((((100*4)*4)*4)*4)*4)*4)....) is research or original research when the equations are on the same page, they are computed once, and then just done a few times back to back with the middle steps left out. Where exactly should the line of OR be drawn? Should it be drawn at the first usage of the text in the money multiplier section? second? the third iterative maximum? 10th? I don't think iterating math is OR. In fact, the chart the Fed's use is iterating math/induction as well. We shouldn't fear that. For discussion, should these middle steps be shown? Would that help everyone's understanding? Javalizard (talk) 02:18, 31 December 2010 (UTC)

Where did you get the number 10 in 100*4^10 from? And what is the basis for it? I think you're multiplierying with the wrong multiplier or the wrong thing. Volunteer Marek (talk) 03:27, 31 December 2010 (UTC)

I didn't come up with those numbers. I used the info on the page and money multiplier to calculate the max by using the same equations the Fed's use in their lending series but by changing the reserve rate to 100%. As shown in Principles of Macroeconomics, the initial deposit is multiplied by the reserve ratio to find the max it can be expanded to. Thus. 400. So you just feed that back into the same equation instead of 100 you use 400, instead of 100 you use 1600. It's very simple math. Really I'm showing you that if x*y=z then any of the following cases will work 2*4=8 as well as 2*5=10. This is not original research as I believe basic mathematics is not original. You're welcome to cite a source that states otherwise. Javalizard (talk) 18:07, 4 January 2011 (UTC)

I cited my source that allows my to do this the first time. Mankiw, N. Gregory (2001), Principles of Macroeconomics. Doing it a second time or third time isn't research if it can be done the first time. Javalizard (talk) 18:10, 4 January 2011 (UTC)

Please stop editwarring

Javalizard, you seem to have added the same content five times in the last 24h. That's a bit more than 3RR. Please stop editwarring. If you want your text to be added to the article, cite a source instead of hitting "revert". If you can't find a source that agrees with you, drop the stick and walk away from the dead horse. bobrayner (talk) 05:22, 31 December 2010 (UTC)

I did cite the source. It's teh text called Modern Money Mechanics. Did you even see that I added that as the source, just as you suggested? Please go read that and stop editwarring. Javalizard (talk) 06:05, 31 December 2010 (UTC)

I have read the source. It does not support your claim. I explained that on your talkpage but will repeat here.

Your preferred source says "Thus through stage after stage of expansion, "money" can grow to a total of 10 times the new reserves supplied to the banking system"

You said that, through stage after stage, money can grow 4194304 times.

10 ≠ 4194304.

That source does not support your claim. If there's any further disagreement, let's discuss it on the talkpage. Don't just keep on adding original research back into the article against consensus. bobrayner (talk) 06:16, 31 December 2010 (UTC)

Central banks don't expand money through fractional lending/fractional relending. Commercial banks do. Source does support the claims that the reserve ratio and reserve ratio create an equation, these two variables are independent, and which can be show with any numbers to show how it works. If you read the source and were able to figure it out, that is not my problem, it's yours. Show how an equation works is not original research. Showing one instance of x*y=z is 1*2=2 and then adding in another instance of 2*4=8 is not original research as you claim. It is showing how the equations from Modern Money Mechanics work. They even show how different variables in an the equation produced different mathematical results in the section with the graph called Money Multiplier ON THE SAME PAGE. If that is original research you had better delete the entire wiki page called money multiplier too! Claiming that telling people how an equation works is original research is crazy talk. It's not original research and your claims that is original research is bunk. I'll leave the section blank for the moment because there are more of you people that believe it is original research or some uncited BS despite my telling and showing you everything you demand. It is not my fault if you can't figure out how the Federal Reserve equations work. They show you how the equations work in their one instance. As I have tried to tell you, the reserve rate and the reserve ratio are not linked together. Other pages on wikipedia have information that show that the reserve rate and the reserve ratio are independent. If this violates your sensibilities, that doesn't mean it's wrong. In fact, it means that you are trying to keep information from people that should have it, and it means YOU are the one edit warring.

Can someone place these idiots in check?Javalizard (talk) 21:50, 1 January 2011 (UTC)

Please stop the personal attacks. You've been warned before about this.

If you still cannot accept that 10 (what the source says) is radically different to 4194304 (what your spreadsheet says) then it's unlikely we can make much further progress. bobrayner (talk) 21:59, 1 January 2011 (UTC)

You need to stop calling facts, data, and formulation ON THE SAME PAGE original research Javalizard (talk) 01:56, 2 January 2011 (UTC) Also, stop calling the Federal Reserve monetary expansion models Original research, they aren't. Javalizard (talk) 02:00, 2 January 2011 (UTC)

From the same page: "As a formula, if the reserve ratio is R, then the money multiplier m is the reciprocal, m = 1 / R, and is the maximum amount of money commercial banks can legally create for a given quantity of reserves."

The maximum reserve ratio in the example would be 25% based on 20/80. 20 being the reserves and 80 being the money created given the reserves. This is inclusive of 20%, or the reserve rate. This also means that the model is just as valid for a reserve ratio of 25% as it is for 20% as it is for 0.0001%. So for the last time, stop edit warring calling this original research. Javalizard (talk) 19:40, 3 January 2011 (UTC)

Just as the paper MMM iterates math, iterating the same mathematics with different numbers is not OR. Anyone can do that and replicate the results. In fact, the chart in the section money multiplier uses the same mathematics with different numbers in it too! By your definition that would be OR as well. But it's not. That's my point. I am not saying anything new. Javalizard (talk) 20:23, 3 January 2011 (UTC)

Reserve Ratio vs Reserve Rate

(Copied from my talk page. LK (talk) 04:42, 3 January 2011 (UTC))

You claim they are the same. Please. Cite your source and prove me wrong. In fact, why don't you just change money creation to say that with sources. It would help my understanding of the world. Javalizard (talk) 04:07, 2 January 2011 (UTC)

You are mistaken, it is up to you to prove your contention that such a distinction exists. See WP:PROVEIT: "The burden of evidence lies with the editor who adds or restores material." I would also add that the term "reserve rate" does not exist in the index for the several macroeconomics text books that I happen to have on hand (Mankiw, Krugman and Wells, Abel and Bernanke, Barro, and Sachs and Larrain).

I am copying this to the article talk page. From now on, please reserve all article talk to the article talk page. All further such communications will be copied there. LK (talk) 04:42, 3 January 2011 (UTC)

Very quickly [1]. Look in particular at the third one. Volunteer Marek (talk) 08:47, 3 January 2011 (UTC)

It appears from the above and a bit of google-fu that the term "required reserve rate" is a synonym for "required reserve ratio" used mainly in China and a few other countries in East Asia. See for example page 16 of this book [2] --LK (talk) 10:06, 3 January 2011 (UTC)

I very much admire the WP:PROVEIT philosophy. Here is the issue in this circumstance: Rate is not the word Ratio. They are different words. I cannot prove they are different as they are different unless proven the same. I can't prove a negative. I've looked for the positive proof, but never found a source. Javalizard (talk) 19:48, 3 January 2011 (UTC)

I suspect people equate the two because they sound about the same, look about the same, have similar meanings, and the expansion models the Fed uses fits both the % of deposits going into reserves AND how much it is expanded. This can confuse a lot of people. The max reserve ratio is not OR as this is given within the same page. Given that "The money multiplier is multiplied by the initial deposit to show the maximum amount of money it can be expanded to." That supports what I am saying in that a reserve rate of 100% is equal to the initial deposit and the money multiplier comes from the reserve ratio. To me, this implies that some peoples' ideas that they are the same, isn't true. Javalizard (talk) 20:11, 3 January 2011 (UTC)

My last point is to show you what happens if the words are reversed: Reserve Rate becomes The Rate of Reserves. The Reserve Ratio becomes the Ratio of Reserves. In the first case, the word rate implies change which is what what happens to initial deposits as they are changed to reserves. The word ratio doesn't have a time dynamic implicitly built in which makes the ratio of reserve to money loaned out appropriate.

As per the Maximum Reserve Ratio math shows, it is specific to the ratio of reserves to the money loaned out. To assume that it is anything else is mathematically inaccurate. Yet it seems in all the Feds examples they give a percent and call it "reserves". Thus given that "reserve ratio" is already mathematically defined, I only makes sense that what some people call the reserve rate could only be the conversion from deposits to reserves. The table, before being deleted again despite also found in money multiplier, even said 20% reserve rate which is very simple to compute and even makes sense... 20/100=reserves/deposit. That was there before I started my editing and the "reserve rate" language is in the graph in the money multiplier section. The max RR was also on the page before my edits. Applying info on the page to examples on the page is not Original Research Javalizard (talk) 21:18, 3 January 2011 (UTC)

So yes, if you believe that the mathematical definition of reserve ratio is qualitatively synonymously defined as reserve rate (which seems to me to be a mathematically distinct number), please, enlighten me with your citations. Javalizard (talk) 21:37, 3 January 2011 (UTC)

There is only one concept described in academic papers, text books and various banking regulations. This concept is variously called the R, rr, reserve ratio, required reserve ratio, reserve rate, required reserve rate, required reserves. They all mean the same thing, the fraction of deposits that a bank is required by law or regulation to keep as reserves in the form of cash or other liquid instruments. This fraction is calculated as [required reserves/total deposits]. All sources cited in the article and above on this talk page attest to this fact.

It is your own uncited and rather strange idiosyncratic assertion that the ratio [reserves/funds loaned] is somehow relevant, and further that bank deposits are also reserves (when all sources state that only cash or other liquid instruments are reserves). Everyone else involved in this discussion has found this assertion incorrect and unsupported by the sources cited. This is the clear consensus here.

You are actively doing a disservice to Wikipedia as an encyclopedia if you keep on continually reintroducing your own idiosyncratic assertions. Please do not revert to your contentious version against the clear consensus of the other editors here. Doing so is edit warring and against policy. Slow edit warring without technically breaking WP:3RR is still edit warring, and you can be blocked for doing so. Continually doing so even after being blocked, will lead to your being banned from editing Wikipedia. LK (talk) 05:01, 4 January 2011 (UTC)

They are not the same. Mathematically RR is defined as the money loaned out over the reserves. You're calling it something else which it is not. You have failed to explain how you get 20% if 80/20=4. None of your descriptions make consistent logical sense. You can't call two different mathematical equations the same thing. You can't make the same equation do two different things. This is not OR. You are not making any logical mathematical sense. Javalizard (talk) 17:57, 4 January 2011 (UTC)

You are doing a disservice to wikipedia by continuing to confuse people about these two mathematically distinct numbers. You can't even cite any sources that they are the same. I can't prove a negative! I've looked and looked for a positive but can't find ANY! So the burden of proof is on you to show that they are indeed MATHEMATICALLY the same concept! None of this, they confused it so we should keep it confused here. stop deleting this section on relending. Javalizard (talk) 18:00, 4 January 2011 (UTC)

I'm willing to take the risk of getting banned from Wikipedia. This stuff is consistent (which is key, unlike your supposition that one mathematical concept means two things), is research, is cited, is confirmed, and the reason why I am willing to take such risks of getting banned from Wikipedia is because I have verified how this works personally with my own bankers. I do not cite that research as it is original but I am, thus, willing to get banned over it, for it is how things work. Javalizard (talk) 18:48, 4 January 2011 (UTC)

I did iteratively add things. As editors removed my content, I addressed their issues. Despite asking to take it to talk they continued deleting. I kept reverting but changing to address those concerns. Javalizard (talk) 18:52, 4 January 2011 (UTC)

You are describing your own personal opinion, not backed up by any sources whatsoever. This is no justification to continually reintroduce the same text against the clear consensus of editors here. What you are doing is against Wikipedia policy. Stop. LK (talk) 06:57, 5 January 2011 (UTC)

reserve rate(or the discount rate is the rate at which the Fed lends money to member banks, reserve ratio is the percentage of deposits that banks must keep on hand as cash. The definition that Javalizard is using seems to be incorrect. Javalizard please keep in mind WP:CIVIL when you're discussing with other editors. Voiceofreason01 (talk) 13:42, 5 January 2011 (UTC)

First section is hopelessly misleading if not completely wrong

• Human beings have been creating private monies for thousands of years.
• Anybody offering credit services to facilitate trade can create a private money providing they can retain creditors or have their own claimable assets.
• money creation is not reserved for governments and central bankers. Private monies exist in the economy that are not counted as part of the official money supply. For example a bar tender has a chalk board with the available newly created money allowing customers to buy drinks where repayment with interest could be required. If he wanted and was legally allowed he could get rid of the chalk board and issue loaned tokens that could be used in the local community amongst people who knew and trusted him and these could be redeemable for cash if people came to his bar or 'deposited with him' for an interest payment or used to buy his services.

Surely wiki can do a better job at being encyclopediatic than some particularly important pages are doing? Doesnt the word mean 'all incompassing teaching' ? Andrewedwardjudd (talk) 10:10, 14 April 2011 (UTC)andrewedwardjudd

Does the money multiplier model still apply in the UK ?

• Where does money come from? by Andrew Jackson,Richard Werner,Tony Greenham,Josh Ryan-Collins (12 December 2012) produced by the New Economics Foundation (NEF) based on documents supplied by the Bank of England, claims that the growth in money supply in the UK was based on commercial banks willingness to lend up to 2007 (before the start of the financial crisis), and that interest rates and the reserve requirement had little effect in restraining lending between 1997 and 2007. Banks increased their lending and then sought the reserves afterwards. (talk) 23:30, 29 August 2013 (UTC)brandsby

The source is not suitable for the statements attributed to it. Moreover, the statements would need to relate to the context of the narrative to which they are added. Please read this page: WP:RS and this page WP:V.

What evidence do you have that the source is not suitable for the statements attributed to it ? — Preceding unsigned comment added by Brandsby (talk • contribs) 22:48, 29 August 2013 (UTC)

More economists express doubts about the money multiplier model and banks lending out "reserves"

I think the following needs to at least be on the talk page, even if it appears to be banned from the main page. Please note the calibre of the economists listed.

Standard & Poor's chief global economist describes the Money Multiplier Model as a "defunct idea": http://2joz611prdme3eogq61h5p3gr08.wpengine.netdna-cdn.com/wp-content/uploads/2013/08/SP-Banks-Cannot-And-Do-Not-Lend-Out-Reserves-aug-2013.pdf

Michael Kumhof, Deputy Division Chief, Modelling Unit, Research Department, International Monetary Fund said "the textbook treatment of money in the transmission mechanism can be rejected”.

Mervyn King, Governor of the Bank of England 2003 to 2013 said “Textbooks assume that money is exogenous.” … “In the United Kingdom, money is endogenous”.

Professor Charles Goodhart CBE, FBA, ex Monetary Policy Committee, Bank of England said of the money multiplier model: “It should be discarded immediately”.

Professor David Miles, Monetary Policy Committee, Bank of England said “The way monetary economics and banking is taught in many, maybe most, universities is very misleading”.

Senior Vice President of the Federal Reserve Bank of New York, 1969, said “In the real world, banks extend credit, creating deposits in the process, and look for reserves later”.

JP Morgan Chase, Global Data Watch: "In spite of being almost totally divorced from reality, the money multiplier is still taught in undergraduate economics textbooks, with much resulting confusion." http://www.stanford.edu/~johntayl/JPM_Global%20Data%20Watch_Money-Multiplier.pdf Reissgo (talk) 19:02, 26 August 2013 (UTC) and brandsby (talk) 00.22, 30 August 2013 (UTC)

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http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Money creation in the modern economy by Bank of England states on page 3: "While new broad money has been created on the consumer’s balance sheet, the first row of Figure 1 shows that this is without — in the first instance, at least — any change in the amount of central bank money or ‘base money’. As discussed earlier, the higher stock of deposits may mean that banks want, or are required, to hold more central bank money in order to meet withdrawals by the public or make payments to other banks. And reserves are, in normal times, supplied ‘on demand’ by the Bank of England to commercial banks in exchange for other assets on their balance sheets. In no way does the aggregate quantity of reserves directly constrain the amount of bank lending or deposit creation.

This description of money creation contrasts with the notion that banks can only lend out pre-existing money, outlined in the previous section. Bank deposits are simply a record of how much the bank itself owes its customers. So they are a liability of the bank, not an asset that could be lent out. A related misconception is that banks can lend out their reserves. Reserves can only be lent between banks , since consumers do not have access to reserves accounts at the Bank of England."

http://www.ecb.europa.eu/pub/pdf/mobu/mb201205en.pdf

ECB Bulletin May 2012 states on page 21-22: "Eurosystem, however, as the monopoly supplier of central bank reserves in the euro area, always provides the banking system with the liquidity required to meet the aggregate reserve requirement. In fact, the ECB’s reserve requirements are backward-looking, i.e. they depend on the stock of deposits (and other liabilities of credit institutions) subject to reserve requirements as it stood in the previous period, and thus after banks have extended the credit demanded by their customers.

In the current situation of malfunctioning money markets, the Eurosystem supplies central bank reserves to each counterparty elastically against the provision of adequate collateral, through fixed rate tenders with full allotment. This ensures that each individual counterparty is able to meet its reserve requirements, as well as any additional liquidity needs. In the case of normally functioning interbank markets, the Eurosystem always provides the central bank reserves needed on aggregate, which are then traded among banks and therefore redistributed within the banking system as necessary. The Eurosystem thus effectively accommodates the aggregate demand for central bank reserves at all times and seeks to influence financing conditions in the economy by steering short-term interest rates.

In sum, holdings of central bank reserves are thus not a factor that limits the supply of credit for the banking system as a whole. Ultimately, the growth of bank credit depends on a set of factors that determine credit demand and on other factors linked to the supply of credit."

http://www.bis.org/publ/work269.pdf

Bank of International Settlements working paper, Monetary policy implementation: Misconceptions and their consequences states on page 14: "While being highly intuitive, the utilization of the money multiplier in expositions of monetary transmission can be misleading. This is illustrated, for example, in the literature on the bank-lending channel (Bernanke and Gertler 1995; Bernanke and Blinder 1988). Three assumptions are responsible for engendering banks a special role in this particular view of the transmission mechanism: i) binding reserve requirements limit the issuance of bank demand deposits to the availability of reserves;. ... From a monetary policy implementation perspective, however, the problem is in assumption i). This is premised on the notion that central banks set the level of reserves as the operational target of policy and that banks’ deposit base, and thus their supply of loanable funds, is linked directly to variations in reserves through the money multiplier mechanism. In fact, the true causal relationship actually runs in exactly the opposite direction. The banking system creates deposits as they are demanded by the private sector, and the central bank’s main liquidity management task is to ensure a sufficient supply of balances for the system as a whole to maintain reserve requirements, if any, associated with those deposits. It is the amount of deposits that the banking sector can attract that determines the level of reserves not the other way around."

These three banking institution papers clearly state that money multiplier story is not valid. Money creation page should be modified to explain how money is created in reality.

192.89.123.43 (talk) 15:28, 21 March 2014 (UTC)

Money creation and "legal forgery"

Whoever is going to zap this soon, please man up, say who you are, and why you wish to delete. Don't hide behind an anonymous IP address. This source, legal forgery is well researched and sourced, so have a look at it before you remove the link. It is relevant to alternative views. Thank you. Brandsby (talk) 14:38, 5 September 2013 (UTC)

Here I am, "manned up" (but WP has lots of female contributors). The source you want to add looks like a personal blog. See WP:SPS for guidance. Now if your source was Professor Billy Davies from American University, then Professor Davies' blog might work. But these are not the same guys. What you might do is look at the sources that your Davies has utilized and incorporate those sources into the article. – S. Rich (talk) 15:25, 5 September 2013 (UTC) PS: This does not mean that you can cite sources and link them to Bill's article. The sources you cite must be WP:RS in and of themselves. 15:31, 5 September 2013 (UTC)

Thank you for "maning or womaning" up, appreciate that. The author has looked at the subject of money creation for over 40 years. For example this is in Chapter 6, based on work by Nigel Jenkinson, ex Bank of England. I will try and cite further sources from the work. I am not Bill Davies, by the way. Mr Davies wrote and researched much of this before the huge advance of computers and the Internet, even though the work is only available on the Internet.

"Many people still believe that the textbook reserve base system places a limit on monetary expansion by the banks but in fact the UK authorities have never used such a system. Chapter 6 is based on a paper written in April 2008 by Nigel Jenkinson, Executive Director for financial stability at the Bank of England. . Today there is no credit multiplier apart from statutory liquidity ratios and a bank can easily purchase eligible liquid assets out of profits, the statutory liquidity ratio was 32% when the Bank of England was nationalised in 1947. It was then steadily reduced until it was finally replaced by a cash ratio deposit regime in 1981, which in 1996 was calibrated to ensure that a bank had enough highly liquid assets to meet its outflows for the first week of a liquidity crisis without recourse to the inter-bank market, in order to allow the authorities time to explore options for an orderly resolution. As a restraint on lending this was virtually non existent." Brandsby (talk) 16:03, 5 September 2013 (UTC)

This is a sourcing issue for Wikipedia. At this stage we are not concerned with "what" Davies says. Rather, "who" is Davies. If he were a university professor in the subject of economis, and had published these ideas on his blog, then we could use it. But Davies is not a professor or published author. Wikipedia has restrictions on the type of source we allow. In this case, because Davies is simply providing his accumulated wisdom, we cannot use it, no matter how "true" or "correct" it is. To compare, the 2008 paper by Nigel Jenkinson might be an acceptable source. Where was it published. – S. Rich (talk) 16:44, 5 September 2013 (UTC)

I have asked Davies to provide further sources if possible. Davies was going to publish his book in physical book form, but owing to the cost and limited audience, he decided to put his work on the Internet. This does not make his work any less valid because it has not been published as a physical book. I have looked for Nigel Jenkinson's speech when he was at the Bank of England in 2008 on the Internet, unfortunately the B of E seem to have removed it. The problem I and other users have with Wikipedia is that the "published sources" are sometimes incorrect. There is a growing body of evidence that is bringing the multiplier model of fractional reserve banking into disrepute, and yet it receives top billing on this page and on the fractional reserve banking page, because the multiplier model is what is described in many text books on economics. This therefore misdirects students of economics and banking, and sometimes policy makers. See further up this page "Does the money multiplier model still apply in the UK ?" Brandsby (talk) 10:31, 6 September 2013 (UTC)

Recent Bank of England paper

This paper from the Bank of England effectively refutes most of the assertions in this article (that money creation is mostly about fractional reserve banking and the money multiplier). Is this article therefore wrong? (I ask objectively, not to make any political or academic point).

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf