Anyone know when QE3 will get announced?

Appendix E – Money Is Created by Banks
Evidence Given by Graham Towers





Some of the most frank evidence on banking practices was given by Graham F. Towers, Governor of the Central Bank of Canada (from 1934 to 1955), before the Canadian Government's Committee on Banking and Commerce, in 1939. Its proceedings cover 850 pages. (Standing Committee on Banking and Commerce, Minutes of Proceedings and Evidence Respecting the Bank of Canada, Ottawa, J.O. Patenaude, I.S.O., Printer to the King's Most Excellent Majesty, 1939.) Most of the evidence quoted was the result of interrogation by Mr. “Gerry” McGeer, K.C., a former mayor of Vancouver, who clearly understood the essentials of central banking. Here are a few excerpts:

Q. But there is no question about it that banks create the medium of exchange?

Mr. Towers: That is right. That is what they are for... That is the Banking business, just in the same way that a steel plant makes steel. (p. 287)

The manufacturing process consists of making a pen-and-ink or typewriter entry on a card in a book. That is all. (pp. 76 and 238)

Each and every time a bank makes a loan (or purchases securities), new bank credit is created — new deposits — brand new money. (pp. 113 and 238)

Broadly speaking, all new money comes out of a Bank in the form of loans.

As loans are debts, then under the present system all money is debt. (p. 459)

Q. When $1,000,000 worth of bonds is presented (by the government) to the bank, a million dollars of new money or the equivalent is created?

Mr. Towers: Yes.

Q. Is it a fact that a million dollars of new money is created?

Mr. Towers: That is right.

Q. Now, the same thing holds true when the municipality or the province goes to the bank?

Mr. Towers: Or an individual borrower.

Q. Or when a private person goes to a bank?

Mr. Towers: Yes.

Q. When I borrow $100 from the bank as a private citizen, the bank makes a bookkeeping entry, and there is a $100 increase in the deposits of that bank, in the total deposits of that bank?

Mr. Towers: Yes. (p. 238)

Q. Mr. Towers, when you allow the merchant banking system to issue bank deposits which, with the practice of using the cheques as we have it in vogue today, constitutes the medium of exchange upon which I think 95 per cent of our public and private business is transacted, you virtually allow the banks to issue an effective substitute for money, do you not?

Mr. Towers: The bank deposits are actual money in that sense, yes.

Q. In that sense they are actual money, but, as a matter of fact, they are not actual money but credit, bookkeeping accounts, which are used as a substitute for money?

Mr. Towers: Yes.

Q. Then we authorize the banks to issue a substitute for money?

Mr. Towers: Yes, I think that is a very fair statement of banking. (p. 285)

Q. 12 per cent of the money in use in Canada is issued by the Government through the Mint and the Bank of Canada, and 88 per cent is issued by the merchant banks of Canada on the reserves issued by the Bank of Canada?

Mr. Towers: Yes.

Q. But if the issue of currency and money is a high prerogative of government, then that high prerogative has been transferred to the extent of 88 per cent from the Government to the merchant banking system?

Mr. Towers: Yes. (p. 286)

Q. Will you tell me why a government with power to create money, should give that power away to a private monopoly, and then borrow that which parliament can create itself, back at interest, to the point of national bankruptcy?

Mr. Towers: If parliament wants to change the form of operating the banking system, then certainly that is within the power of parliament. (p. 394)

Q. So far as war is concerned, to defend the integrity of the nation, there will be no difficulty in raising the means of financing, whatever those requirements may be?

Mr. Towers: The limit of the possibilities depends on men and materials.

Q. And where you have an abundance of men and materials, you have no difficulty, under our present banking system, in putting forth the medium of exchange that is necessary to put the men and materials to work in defence of the realm?

Mr. Towers: That is right. (p. 649)

Q. Would you admit that anything physically possible and desirable, can be made financially possible?

Mr. Towers: Certainly. (p. 771)
 
Quote from antitrust:

no, incorrect when a loan is made total banking system deposits go up. money is not taken from any were or moved. The fed is quite cleal on this if you read there documents i posted

i highly doubt the treasury and fed are misinformed.Can you show me something from the fed that says that m0-m3 money supply states is some representation of money velocity.

this might help you.


How did we get over 57 trillion dollars in debt when all we have done for the last 250 years is create wealth by combining our ideas and our labor with the raw resources of the earth?
In search for the answer to that question, letters were written to the U.S. treasury and others. The answer received from Russell Munk, assistant general council for the U. S. treasury, was: “the actual creation of money (ALWAYS) involves the extension of credit from private commercial banks.” This means interest bearing loans. Mr. Munk then went on to say “You may want to know whether the bank is the one getting the benefit of the new money, since the bank owns the new money while the customer has merely borrowed the money. The bank does indeed get the benefit of the new money”.

My next question was, If all money is created as interest-bear loans, how is the money created to pay interest on the loans? The answer received from Mr. Munk was, “the money to pay the interest on loans comes from the same source as all other money.” In other words, it also has to be borrowed from a commercial bank. John M. Yetter, writing for the U. S. treasury stated: “The money that one borrower uses to pay interest on a loan has been created somewhere else in the economy by another loan”.

John B Henderson, Senior Specialist in Price Economics, Congressional Research Service, The Library of Congress stated: “Money is created when loans are issued and debts incurred, money is extinguished when loans are repaid”.

Quote: Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta:
“If all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulation”.

My next question was just what kind of credit do banks extend to us? I found the answer to that question in the Third Edition of the Federal Reserve System Purposes and functions page 6 “All bank deposits are a form of credit. Basically, they represent amounts owed by banks to depositors. They come into existence by an exchange of bank promises to pay customers for the various assets which banks acquire—currency, promissory notes of business, consumer and other customers, mortgages on real estate, and Government and other securities.”

Our currency is a liability of the issuing Federal Reserve Bank and an obligation of the US Government Source personal letter form M.M. Schneider Acting Executive Assistant Bureau of Engraving and printing. “When individuals or businesses want currency or coins to spend, they write a check, exchanging one form of money (checkbook money) for another (cash) both are a liability of a bank.” Department of the Treasury Office of the Public Correspondence Fact Sheet OPC-5

The Bureau of Engraving and Printing produces the nation’s paper currency and sells it to the Federal Reserve System for 4.2 cents per note. “The Bureau of Engraving and Printing is not authorized to print or issue United States paper currency for direct delivery to the public. Currency notes are placed into circulation by your local financial organization and can only be obtained from that source” Linda W. Coleman Dept. of the Treasury

When, someone exchanges the checkbook money for the currency, the liability of a commercial bank is in effect shifted to a Federal Reserve Bank, Federal Reserve Notes move into circulation and checkbook money is removed from circulation. The net effect is the banking system creates and loans a promise to pay to the government and to the people and receives unto themselves as a profit the real physical wealth produced by the people.

The government then uses its power to tax the people to guarantee the banks promise to pay. The government receives nothing except what it first takes from the people. So the government’s guarantee of the currency is based on a mortgage on all the homes ands other property of the people. This fact is well articulated in the Congressional Record March 9, 1933, H. R. 1491, pg. 83 speaking about the Federal Reserve Act, “Under the new law, the money is issued to the banks in return for government obligation, bills of exchange, drafts, notes, trade acceptances, and bankers’ acceptances. The money will be worth 100 cents on the dollar because it is backed by the credit of the nation. It will represent a mortgage on all homes and other property of all the people in the nation” This is what mean by the statement the money is backed by the faith and credit of the U.S. government.

We must borrow the bank’s promise to pay and pay interest to have a medium-of-exchange. The banks owe, the government owes, and the people owe, nothing was loaned. Yet the banks and the government can go though the courts and force the people to give up all the real physical property to pay the loans. Up to this point no one as demanded that the banks pay. The debt is one of deception, just a trick played on the minds of the people. The long term effect is the people who actually produce the wealth lose their right to gain the full benefit of their production. The men running the banking system and the corporation that grow up around it gain control over everything.

http://www.wealthmoney.org/articles/our-flawed-monetary-system-2/
More...

You have just agreed with what I was saying. They can only increase the lending when the investing increases. The deposits show one side of that investment the lending shows the other. Do you not understand double entry book keeping.

The reasons lending has risen is directly as a result of the increase in the deposit. The deposit increase is the investment and the loan is the other side of that investment.

You need to understand how accounting works.
 
Quote from morganist:

Further note.

Perhaps the correct terminology should be money introduction rather than money creation. Your understanding of it indicates QE as you state money creation. Whereas I would look at it as introducing money into the system. No money is created it is simply taken from another source such as an asset or future cash flow. The term creation indicates it is made like it is with QE when it is not backed up against an asset.
More...

to be clear i define money creation has any increase in checkbook liabilities of the banking system.The Fed also uses this def.this money is available on demand by depositors.

Now you may not agree, because checkbook money are liabilities that have to be taken out of bank reserves (the banks own money). But the reserves are almost always a mere fraction of the deposits created by said bank. Thus the checkbook liabilities are always greater then reserves. this does represents money in the economy. So by the ability of the bank to have far more checkbook deposits than reserves the are creating money from loan operations.(more deposits)
 
Quote from antitrust:

to be clear i define money creation has any increase in checkbook liabilities of the banking system.The Fed also uses this def.this money is available on demand by depositors.

Now you may not agree, because checkbook money are liabilities that have to be taken out of bank reserves (the banks own money). But the reserves are almost always a mere fraction of the deposits created by said bank. Thus the checkbook liabilities are always greater then reserves. this does represents money in the economy. So by the ability of the bank to have far more checkbook deposits than reserves the are creating money from loan operations.(more deposits)
More...

I think this is where we are disagreeing. The concept of money creation. I would not consider that to be money creation merely an increase in the money in the economy used to make transactions.

No new money is created it is just used to make transactions. Whereas QE is money creation. Money that is not based on any asset is put into the economy diluting the value of the currency.

I think the point I am making is that the money supply increases you are talking about are used to purchase some kind of asset even if it is a future cash flow. QE is not a purchase of money it is a dilution of money and thus imo the only form of money creation. The other forms of money supply increases are as a result of buying and selling of assets even if they are future cash flows.
 
Quote from morganist:

I think this is where we are disagreeing. The concept of money creation. I would not consider that to be money creation merely an increase in the money in the economy used to make transactions.

No new money is created it is just used to make transactions. Whereas QE is money creation. Money that is not based on any asset is put into the economy diluting the value of the currency.

I think the point I am making is that the money supply increases you are talking about are used to purchase some kind of asset even if it is a future cash flow. QE is not a purchase of money it is a dilution of money and thus imo the only form of money creation. The other forms of money supply increases are as a result of buying and selling of assets even if they are future cash flows.
More...

dilution can occur with an increase of checkbook money as well. Making more money available for mortgages that would not be availably under a 100% reserve causes those assets to go up in price which is an inflation or delusion of money based on existing assets. more money same assets.

the money velocity you speak of has no relevance here. or in the money supply stats given by the federal reserve.It's plian old money creation/destruction as new loans are taken out an old ones are paid off that is how the double book keeping entry system works
it is true that a loan made to increase assets wouldn't be delusional. but this isn't the case.
This checkbook money can also be captured by the bank and added to the reserve side.
Thus a cycle of inflation occurs (dilution). Simply put the banks can loan as much money a borrower can afford to pay. So the value of an asset is determined by how much a bank lends against it. Which is determined by how much the borrower can or wants to pay for said asset. The amount of credit available by the bank determines prices and that credit can be created by the banks above and beyond their reserves. therefor we have the same dilution you speak of
 
Quote from antitrust:

dilution can occur with an increase of checkbook money as well. Making more money available for mortgages that would not be availably under a 100% reserve causes those assets to go up in price which is an inflation or delusion of money based on existing assets. more money same assets.

the money velocity you speak of has no relevance here. or in the money supply stats given by the federal reserve.It's plian old money creation/destruction as new loans are taken out an old ones are paid off that is how the double book keeping entry system works
it is true that a loan made to increase assets wouldn't be delusional. but this isn't the case.
This checkbook money can also be captured by the bank and added to the reserve side.
Thus a cycle of inflation occurs (dilution). Simply put the banks can loan as much money a borrower can afford to pay. So the value of an asset is determined by how much a bank lends against it. Which is determined by how much the borrower can or wants to pay for said asset. The amount of credit available by the bank determines prices and that credit can be created by the banks above and beyond their reserves. therefor we have the same dilution you speak of
More...

What you are talking about is valuation increase. It is like saying that an increase in a handbag is money creation. It is simply the way business works barter and hagling. No new money has been created more has simply been taken from money previously made to purchase the good.
 
Quote from morganist:

What you are talking about is valuation increase. It is like saying that an increase in a handbag is money creation. It is simply the way business works barter and hagling. No new money has been created more has simply been taken from money previously made to purchase the good.
More...

no an increase in the price of a hand bag does not increase the amount of deposits at a bank. as when a loan is taken out. Prices rise when bank loans increase and so does deposits in the banking system. i would consider this money creation.

but my main point in my OP was that QE does not necessarily lead to increase money supply.If loans are being paid off or defaulted on bank Deposits go down. The question is what the net is.this is under the feds definition of money that includes deposits.
 
Quote from antitrust:

no an increase in the price of a hand bag does not increase the amount of deposits at a bank. as when a loan is taken out. Prices rise when bank loans increase and so does deposits in the banking system. i would consider this money creation.

but my main point in my OP was that QE does not necessarily lead to increase money supply.If loans are being paid off or defaulted on bank Deposits go down. The question is what the net is.this is under the feds definition of money that includes deposits.
More...

I think you are missing my point. There is a function in banking that is like buying a handbag you purcahse a good in this case a future cash flow. This form of increase in money supply is made by putting money that already exists back into the economy. The form of money creation in QE is an increase in currency. There is no asset that was realised or reintroduced to purchase a good.
 
I just realised that 2012 is an election year. Since the Fed likes to help the hand that feeds it, I would say QE3 starts beginning of next year, for 11 months. :D
 
Quote from morganist:

I think you are missing my point. There is a function in banking that is like buying a handbag you purcahse a good in this case a future cash flow. This form of increase in money supply is made by putting money that already exists back into the economy. The form of money creation in QE is an increase in currency. There is no asset that was realised or reintroduced to purchase a good.
More...

so are you considering an asset any any form money?

By you're definition of money. it would appear to me that money
(currency as you used in this post) supply could never decrease. is this correct? if not could you describe a situation were it would

Also i thing currency means actual physical dollars. which isn't happening under a QE unless you count the stock footage of the printing press every time tv mentions it

thanks
 
You must log in or register to reply here.
Back
Top