[qnt]

> Furthermore, it's not clear to me how you believe that the BoE article contradicts what I'm saying. I'm under the impression that you (along with most other people) are simply misunderstanding what you are reading here.

The contradiction seems fundamental. You're suggesting existing deposits facilitate the creation of loans. The entire BoE article is a repeated attempt at showing how loans create deposits.

> Do you think that a bank which has NO MONEY is able to (in a practical sense) create infinite money out of thin air? Sure it can type "9999999999999 dollars" on a computer, but that wouldn't be "real money" in any practical sense, because you wouldn't be able to exchange it for goods and services.

That's ... exactly how it works. If the bank believes you are good for 9999999999999 dollars over the term of the loan, they put +x in your demand deposit account, and -x in your loan account (and from bank's view those are respectively the bank's own liabilities and assets).

You can then go and send that money (demand deposit) somewhere else to buy a house or whatever (goods and services). Bank A and bank B both have banking licences, which means they mutually trust using each other's customer demand deposit accounts as 'money'.

You mentioned you wouldn't be able to exchange that for goods and services - but that's exactly what happens. You then need to find those dollars and pay back the loan eventually from a job or whatever, or else you go bankrupt.

If you would like to turn that demand deposit into hard cash to keep under the mattress, your commercial bank will send your demand deposit to the commercial bank's account with the central bank, and the central bank will truck over some cash in return.

I know you get this since you write it as IOUs in the article. What I'm trying to get across is that nothing has to precede the creation of the IOU, whereas I think you say an initial deposit of government-issued central bank money (cash) is required.

> Follow-up question: if you genuinely believe this to be possible, then why isn't anybody doing that? Surely there are many people working at banks who would like to collude with their friends and family to create infinite money. If you believe that to be possible, why has it literally never happened?

Try it :) I think odds are you end up in jail.

And if a bank (or crypto exchange!) is in the business of writing crap to counterparties who can't pay them back, the bank probably goes out of business once everyone realizes the bank assets (loans) are garbage.

Trying to get a loan without intention of paying it back is bank fraud. It happens and occasionally for very large sums; https://www.afr.com/companies/financial-services/papas-mazco...

Further, regulators like to see banks hold capital against their assets to make sure they can fill the gap when some loans inevitably go bad. That capital could be retained earnings, shareholder capital, etc etc. It just doesn't have to come from an initial deposit.

[baobabKoodaa]

> What I'm trying to get across is that nothing has to precede the creation of the IOU, whereas I think you say an initial deposit of government-issued central bank money (known as cash).

I'll start responding to this because I think it's a point where we agree: yes, you can type any number in a computer and call it "money". Yes, I agree nothing has to precede the creation of numbers on a computer. However, in order for those numbers to actually "be money" in a practical sense where someone could exchange them to goods and services, the bank has to actually own some real money. If the bank literally has 0 reserves, then the money that it creates on the computer will not be in practice exchangeable to goods and services.

> > Do you think that a bank which has NO MONEY is able to (in a practical sense) create infinite money out of thin air?

> That's ... exactly how it works. [...] You can then go and send that money (demand deposit) somewhere else to buy a house or whatever (goods and services). Bank A and bank B both have banking licences, which means they mutually trust using each other's customer demand deposit accounts as 'money'.

If bank A tries to send 9999999999999 dollars to bank B, bank B doesn't simply trust that bank A is good for it. The transfer would not actually go through in the real world. Please produce a single example where this has happened: a single example where a bank had 0 reserves, created >9999999999999 USD out of thin air, and then somebody exchanged that money to goods and services. A single example is enough to prove me wrong. What you're claiming to be possible has never actually happened.

> If you would like to turn that demand deposit into hard cash to keep under the mattress, your commercial bank will send your demand deposit to the commercial bank's account with the central bank, and the central bank will truck over some cash in return.

So in this scenario we have a bank that has 0 reserves in the central bank, and the bank then goes to the central bank and says "I would like to withdraw 9999999999999 dollars in cash, please". This scenario is comparable to you opening up a checking account at a (regular) bank with 0 dollars in it and then walking into the bank saying "I would like to withdraw 9999999999999 dollars in cash, please". The bank would tell you "sorry, your account has 0 dollars, which is less than the 9999999999999 you are trying to withdraw, so we can't make the withdrawal". This is exactly what the central bank would respond to a bank that is holding 0 dollars in reserves at the central bank while trying to withdraw an amount greater than 0 dollars. Even if the bank was asking the central bank to produce $5, the central bank would say no, $5 > $0, you can't withdraw money you don't have.

Edit: to add clarity, I'm saying that this specific part of your claims is wrong: "your commercial bank will send your demand deposit to the commercial bank's account with the central bank". To the extent that the commercial bank is able to "create money out of thin air", it isn't the type of money that the central bank would accept as a deposit. You can fact check this.

> Trying to get a loan without intention of paying it back is bank fraud. It happens and occasionally for very large sums [...]

That's completely unrelated to this discussion. Yes, a bank can loan out money (money that it has) to a fraudster who has no intention of paying back the loan. The question we have here is, can a bank that has 0 money, can it magically create 9999999999999 dollars out of thin air and loan it out. That's unrelated to whether the loanee will eventually pay it back or not.

> The contradiction seems fundamental. You're suggesting existing deposits facilitate the creation of loans. The entire BoE article is a repeated attempt at showing how loans create deposits.

You present these things as mutually exclusive - they're not. Existing deposits facilitate the creation of loans, and the creation of loans expands the amount of existing deposits. Both of these things can be true at the same time, and they are true at the same time.