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  • sensible money
    the accounting process they use when they make loans how banks make payments between each other using central bank money why central banks can t really can control how much money is in the economy This video explains all 20 minutes How much money can banks create Banking 101 Part 4 of 6 What actually limits how much money the banks can create Reserve ratios Liquidity ratios Capital Adequacy Ratios and or the Basel accords Or our inability to borrow and the banks confidence All is explained in an easy to understand way 14 minutes Do banks create money or just credit Banking 101 Part 5 of 6 You might hear some people say that Banks don t create money they just create credit This response often comes from civil servants and people trying to deny that banks now create the nation s entire money supply So let us show you why the numbers that banks create are money and not just credit All is explained in simple terms 5 minutes How money gets destroyed Banking 101 Part 6 of 6 Remember how new money is created when a bank makes a loan Well when someone repays the loan the opposite process happens and money is actually destroyed It effectively disappears from the economy entirely This video explains how 3 minutes Economists on money Watch videos from some highly authoritative figures on how money is created and how we could run the economy differently Money creation in the modern economy In this video filmed in the vaults of the Bank of England Ryland Thomas author of Money creation in the modern economy explains where money comes from Loans create deposits not the other way round Watch this video now 5 minutes The Chicago Plan Revisited Michael Kumhof Deputy Division Chief Modeling Division Research Department International Monetary Fund and Co author of the Chicago Plan Revisited presents at the London School of Economics Nov 2013 This video explains a lot but it is long 90 minutes Can central banks really control money creation Tony Greenham In March 2014 the Bank of England has published papers explaining how the majority of money in the modern economy is created by commercial banks making loans The papers give the clearest explanation ever given by any central bank of the fundamentals of money creation and are mostly in line with the analysis of Positive Money However the Bank of England still seems to believe it can ultimately control the money creation Can central banks really control money creation Tony Greenham Head of Finance and Business at New Economics Foundation discusses this question at Monetary Policy Seminar 13th Nov 2013 Watch now 28 min Why don t economists understand money Prof Victoria Chick Emeritus Professor of Economics University College London addressed the question Why Don t Academics Understand Money at the Positive Money conference in January 2013 She said there has been a regression in the way economics has been taught This video gives some very

    Original URL path: http://sensiblemoney.ie/videos/ (2016-02-11)
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  • sensible money
    Hence they need depositors Banks also like to have some people deposit money in longer term savings account and they do this to manage their liquidity All current accounts on a bank s books are liabilities of that bank and the bank could be called upon to honour these liabilities at short notice Honouring these liabilities could take the form of cash withdrawals or transfer of that banks reserves at the central bank If a customer transfers money from their current account to their savings account within the bank it s still a liability of the bank but a less liquid one How is a Bank Bailout Supposed to Help If we take on more debt than we repay this system runs smoothly However our borrowing fluctuates so we can t meet this condition all the time When we stop taking on more debt someone has to default on a loan This lowers the banking sectors assets The debts while its liabilities The numbers in our current accounts remain the same If we default en masse then the banks liabilities far outweigh its assets To boost the banking sector s assets we increase the numbers in their reserve accounts One way to do that is through a bank bailout The Government collects some money from the population through taxes and transfers it to the banks reserve accounts at the central bank This is supposed to help because the banking sector is then solvent and in a position to create more money In actual fact a mass default on loans is not necessarily undesirable from the point of view of keeping the money supply adequate for trading If we default en masse then as a population we have the same amount of money in circulation but less debt A bank bailout is the opposite It collects money from circulation puts it in the reserve accounts of the banks and so the population has the same debt but less money in circulation Why are Budget Deficits Necessary When you hear that governments collect money from the population through revenue and spend it back into circulation it makes sense to assume that governments cannot continuously run budget deficits Borrowing money to fund budget deficits every year is unsustainable and most of us would conclude that a Government which takes in a small amount and borrows a lot is living beyond its means The analysis changes somewhat when you bear in mind where money comes from in the first place Since money comes from bank loans and is deleted as repayments are made the population will have a matching debt to every euro it has If the Government collected perhaps 10 of the money from the population the population would be left with 100 of the debt but only 90 of the money Trade would suffer even more We cannot trade well without a source of debt free money What has happened in recent decades is the opposite Governments have collected some money from the population but borrowed huge amounts and spent everything back into circulation This has been completely necessary to keeping trading running relatively smoothly The reason that budget deficits are necessary is that they increase the national debt Money from the national debt is money that industries and households haven t had to borrow into existence and yet it circulates between them which allows us to trade better Since we never come close to repaying the national debt in full it feels like debt free money to the economy If the eurozone ever implements strict budget deficits of perhaps 3 as is proposed trading will suffer even further How do Interest Rates Effect the Economy Every commercial bank has an account at the central bank called its reserve account At one stage reserves existed as cash the idea being that if a bank manager noticed a lot of withdrawals the bank could get the central bank to intervene with cash Reserve accounts make less sense in that regard today as they no longer contain cash However the reserve accounts do serve the purpose of allowing banks to pay each other and are considered an indication of a bank s solvency If you transfer money from National Irish Bank to AIB for example National Irish Bank reduces your account and instructs AIB to increase the named account by the amount of the transfer The two banks wait until the end of the financial day and transfer the net amount between them at the Central Bank For example if 5billion is transferred from National Irish Bank to AIB and 4billion is transferred in the other direction then National Irish Bank will transfer the net of 1billion from its reserve account to AIBs at the central bank If the above example continued for several days then National Irish Banks reserve account will appear low while AIBs will appear high To return its reserve account to a higher amount National Irish Bank will be forced to borrow some reserves from AIB AIB might demand an interest rate of perhaps 10 for such a loan which would be unsustainable In this scenario the Central Bank might offer to lend to National Irish Bank at perhaps 1 This is the interest rate which is adjusted in an attempt to control the money supply and inflation If interest rates are low then National Irish Bank s own interest rate which it offers to potential borrowers will be low This should encourage more bank loans and hence new money for the economy Low interest rates are used in times of recession If interest rates are high then National Irish Bank s own interest rate which it offers to potential borrowers will be high This will discourage more bank loans and so less new money will make its way into circulation Interest rates are high in times of high inflation At the moment interest rates are low However if no one is willing or able to borrow from a banks

    Original URL path: http://sensiblemoney.ie/faqs/ (2016-02-11)
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