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Sunday, July 19, 2020
The greatest math blunder in human history
From a comment:
“when the savings of rich people are channeled into loans for poor people” This is the loanable funds fallacy. Banks are NOT financial intermediaries, as Professor Richard Werner points out: “The bank of England discovered that money is created by banks and informs the world in its quarterly bulletin. 97% is created by banks not – as they described them as – other financial intermediaries, when they extend credit, when they do what is called lending. Which actually means that banks are not financial intermediaries because they do not lend money, they create money, they are not in the business of lending, they are in the business of money creation. One pound in net new bank lending is one pound addition to the money supply and purchasing power so the bank of England has come up with that so this financial intermediation story was simply wrong, banks are not intermediaries they are creators of the money supply and of course they allocate – because there is always more demand for money, they are on the supply side and actually they are not just reallocating existing money, they are creating new money, their decision therefore become pivotal in the economy because they can decide who gets money and for what purpose and that will reshape the economic landscape in no time.” Also this from Frances Coppola who worked in banking for 17 years: “As many of you know, I have spent much of the last seven years explaining to anyone who will listen that banks do not “lend out” deposits or reserves. Rather, they create both loan assets and matching deposit liabilities “from nothing” by means of double entry accounting entries. Creating money with a stroke of the pen (or a few taps on a computer keyboard) is what banks do.”
Not true.
When the Bank of England issues a loan it cheats and lets the borrower move up in front of the savings queue. This distorts the deposit to loan ratio and causes a currency risk to be assigned to government.
The deposit queue and the loan queue are naturally independent. The effect tying them together is to distort the price of money. This fallacy on the part of the of central banks is the very reason we have regular recessions. It creates a loop in the system, finance has to count up the distortions and recompute the real S/L ratio after equilibrium time around the loop. The time around the loop is the period between recessions.
This is one of the great scientific blunders of out time, lasting some 250 years and finally discovered around 2001. It is the thesis behind the ‘This time is different’ history book, the cause of periodic government defaults. It has caused war and global contractions. It has sent financial analysts on the impossible search for infinity, it has been a disaster and central bankers are still confused to this very day. It has been a disaster for economic research, putting the field behind for hundreds of years.
Not true.
When the Bank of England issues a loan it cheats and lets the borrower move up in front of the savings queue. This distorts the deposit to loan ratio and causes a currency risk to be assigned to government.
The deposit queue and the loan queue are naturally independent. The effect tying them together is to distort the price of money. This fallacy on the part of the of central banks is the very reason we have regular recessions. It creates a loop in the system, finance has to count up the distortions and recompute the real S/L ratio after equilibrium time around the loop. The time around the loop is the period between recessions.
This is one of the great scientific blunders of out time, lasting some 250 years and finally discovered around 2001. It is the thesis behind the ‘This time is different’ history book, the cause of periodic government defaults. It has caused war and global contractions. It has sent financial analysts on the impossible search for infinity, it has been a disaster and central bankers are still confused to this very day. It has been a disaster for economic research, putting the field behind for hundreds of years.