Brilliant explainer Tim. Could you send it to Nicola Willis for us please. I think her tax understanding got lost in all the posturing to get elected regardless of truth. NZ Budget soon - I dread to think.
Haha, thanks Annie! Between the clowns in central government and the likes of Wayne Brown, everyone with the power to re-distribute our community wealth seems laser-focused on ensuring it only flows upwards... Upton Sinclair put it well: "It is difficult to get anybody to understand something, when their salary depends on them not understanding it."
"It goes without saying, governments are only able to ‘borrow’ from people with excess to lend".
This would be true of bond-sales to non-bank entities, but sales to banks would be creations of new money. Am I right, or are bond-sales somehow different to retail lending mechanisms?
Haha, thanks for the clarification... I did somewhat simplify the mechanics of it all, but I gather it's complicated by the fact that retail banks can kind-of 'print' money (within regulatory limits) but only for stimulatory lending, not for asset buying (i.e. they can print money for a mortgage (someone else's asset), but not for bonds (their asset), which I guess makes sense).
My understanding of the banking license is it has two main conditions:
1. As you say, banks are not allowed to create new money, i.e. lend (euphemism) to themselves for their own purpose. Interestingly, this demonstrates that the bond-sale mechanism is not a loan to the treasury in the normal sense, but rather a 'credit swap'.
2. losses on defaulted loans must be made up from their own equity.
Yep, 1. is presumably always true for fiat money systems (where money is always just numbers in a double-entry book, without the backing of anything 'physical'), so 2. just exists to keep the banks (a bit more) honest ;-)
Coolness. Stop/reverse the Increasing wealth inequality.
Brilliant. I always lament that you need to have money to make money, but your piece adds much deeper rationale! Thank you.
Brilliant explainer Tim. Could you send it to Nicola Willis for us please. I think her tax understanding got lost in all the posturing to get elected regardless of truth. NZ Budget soon - I dread to think.
Haha, thanks Annie! Between the clowns in central government and the likes of Wayne Brown, everyone with the power to re-distribute our community wealth seems laser-focused on ensuring it only flows upwards... Upton Sinclair put it well: "It is difficult to get anybody to understand something, when their salary depends on them not understanding it."
💯
University professor :
Be careful with " averages ".
You can stick your head in the oven,
Your bum in the refrigerator.
And be comfortable.
On average.
This is excellent and I will be sharing it widely. THANK YOU.
Thank you!
"It goes without saying, governments are only able to ‘borrow’ from people with excess to lend".
This would be true of bond-sales to non-bank entities, but sales to banks would be creations of new money. Am I right, or are bond-sales somehow different to retail lending mechanisms?
Apparently Banks buy bonds using their reserve funds at the central bank. So I am NOT right -grrr!
Haha, thanks for the clarification... I did somewhat simplify the mechanics of it all, but I gather it's complicated by the fact that retail banks can kind-of 'print' money (within regulatory limits) but only for stimulatory lending, not for asset buying (i.e. they can print money for a mortgage (someone else's asset), but not for bonds (their asset), which I guess makes sense).
My understanding of the banking license is it has two main conditions:
1. As you say, banks are not allowed to create new money, i.e. lend (euphemism) to themselves for their own purpose. Interestingly, this demonstrates that the bond-sale mechanism is not a loan to the treasury in the normal sense, but rather a 'credit swap'.
2. losses on defaulted loans must be made up from their own equity.
Yep, 1. is presumably always true for fiat money systems (where money is always just numbers in a double-entry book, without the backing of anything 'physical'), so 2. just exists to keep the banks (a bit more) honest ;-)