Tuesday, July 07, 2015

Where do bank loans come from?

Thanks to this article, we have more clarity on the answer:
https://agenda.weforum.org/2015/06/where-do-bank-loans-come-from/

Short answer - the model that says loans come from deposits is misleading and we're better served to understand that money is created through creating a loan / liability (= deposit) in the bank's ledger. Better that you read the article than suffer my summarization.

It seems to me that the intersecting trends of "weaponization of finance",  financial capitalism trumping democracy, and the rise of the blockchain/digital currency pairing suggest that little in security, wether infosec or international security policy can be understood without some grounding in finance etc...

Update - This post from Hyperledger is very good on this topic: http://hyperledger.com/posts/2015-07-05-a-simple-explanation-of-balance-sheets.html

Update - this 30minute video seems relevant (and not a little timely) from Steve Keen:
http://www.debtdeflation.com/blogs/2015/07/09/will-we-crash-again-ftalphaville-presentation/

More - Where does money come from?
https://agenda.weforum.org/2015/06/do-banks-really-create-money-out-of-thin-air/

More - Can banks individually create money out of nothing? — The theories and the empirical evidence
http://www.sciencedirect.com/science/article/pii/S1057521914001070
http://www.sciencedirect.com/science/article/pii/S1057521915001477

More - from the Fed in 2010:
http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

It seems this topic is is both undecided and yet substantially core to understanding how modern economies work. Rhetorical question I suppose - how can we claim to understand economics and the role of financial institutions, for example to make policy or regulatory decisions, if we don't have a basic understanding of this topic?


thanks to openclipart for the image.

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