Do banks loan money

[Patriotdiscussions]

NO, they really don't accept promissory notes "in exchange" for money. They accept promissory notes as promises to pay back money at some future date. The promissory notes themselves are expressions of existing debt, not a substitute for money. And, this is significant, "they" (the bank, the lender, the vendor, the tax collector, whoever) don't have to accept any promissory note -- they can pick and choose which to accept and which to reject, and they can reject any and all promissory notes if they wish.

Correct because the banks do not loan "money"


What they do when they make loans is to accept promissory notes in exchange for credits they make to the borrowers' deposit accounts.


Now is the fed bank publication wrong or are you wrong?

[LPC]

Correct because the banks do not loan "money"

What they do when they make loans is to accept promissory notes in exchange for credits they make to the borrowers' deposit accounts.

What makes you think that "credits they make to the borrowers' deposit accounts" are not "money"?

The reason I ask is that demand deposits with member banks are included in the "M1" measure of money by the Federal Reserve System.

[AndyK]

Before ranting about the lending process, it might be a good idea to understand 'money.'

Strictly limiting the discussion to money denominated in US dollars, what most people consider to be 'money' (Federal Reserve notes and coins) is merely the tip of the iceberg.

Most US-denominated money exists only on ledger sheets or computer files.

For example, my salary was electronically deposited into my checking account. I wrote checks or initiated electronic transfers to pay my bills. I used credit cards for most of my purchases. We're talking about thousands of dollars, each month, being reveived and spent without a single piece of currency involved.

When I bought my home, a similar thing happened. The lending bank wrote a check to the law firm handling the closing. The law firm then wrote checks to the builder of the home, the county (for registration and transfer fees) and several other parties. Although I never saw a penny of currency, everyone involved was satisfied that they had been paid. Over the following years, I wrote checks to the lending bank (as I had agreed when I signed the mortgage documents) until I had repaid what I had borrowed plus the interest.

Throughout this entire process, no currency was exchanged. Still, a LOT of money moved around.

So, to answer your gramatically incorrect question; yes, banks do lend money. They just very rarely lend cash.

[notorial dissent]

A promissory note is exactly that, a public written PROMISE to pay back a sum certain of money usually plus interest borrowed from a lender, possibly with attached conditions.

In real estate transactions, the note is almost always backed up by a Trust Deed to the benefit of the lender in case the borrower defaults.

The value of the note is dependent upon the borrower paying back the money borrowed and usually plus the interest on the funds borrowed. Otherwise it is just another piece of paper.

[Famspear]

....the banks do not loan "money"


What they do when they make loans is to accept promissory notes in exchange for credits they make to the borrowers' deposit accounts.


Now is the fed bank publication wrong or are you wrong?

You just flunked the college course on Money and Banking. The borrower's deposit account is MONEY.

You are thinking of paper currency and current coins. Those are indeed kinds of money. But those are not the only kinds of money.

Money in the true, technical economic sense includes the liability that the bank owes to its customer -- in the form of a deposit account. The balance in your checking account is money.

The "fed bank" publication is correct -- and you, "Patriotdiscussions," are wrong. In part, this is because you don't understand the basic concepts.

Yes, the banks loan money. If the bank has you sign a promissory note for $1,000 and, to fund the loan, sets up a checking account for you for $1,000, the bank debits an asset account called "loans receivable" (or some such similar name) on its books, and credits a liability account (let's call it "checking account for Patriotdiscussions") for $1,000. That checking account balance is MONEY in the technical economic sense. It is a "demand deposit" account, and it is a liability that the bank owes to you. That is its legal significance, that is its economic substance, and that is how the bank is required to account for it in the audited financial statements of the bank.

There is no paper currency or current coin involved at this point, but the checking account balance is MONEY.

Go to college and take a course called Money and Banking.

[Gregg]

Quatloos has a lot of really smart experts in some very complicated fields, law, tax etc.... and count on it, they're wicked smart and know their stuff. You can come in sincerity to ask them for advise and they'll give you the kind of answers you might pay big bucks to get from going to your local lawyer, CPA etc....

I, humbly, consider myself truly expert on this scale in not one, but two fields. I like to think I know a bit more than your average bear about the mechanics of Central Banking and I know more than anything on less than 3 legs about the business of building cars.

You have yet to ask about why the Big 3 are hiding the carburetor that allows cars to get 50 MPG (that's not even a good conspiracy anymore, my car really does get nearly 50 MPG nowdays), but I do hold out hope....when your banking delusions get interesting I'll bother to answer you squash you like a bug.

But you're not really even close to that yet.

[Patriotdiscussions]

Before ranting about the lending process, it might be a good idea to understand 'money.'

Strictly limiting the discussion to money denominated in US dollars, what most people consider to be 'money' (Federal Reserve notes and coins) is merely the tip of the iceberg.

Most US-denominated money exists only on ledger sheets or computer files.

For example, my salary was electronically deposited into my checking account. I wrote checks or initiated electronic transfers to pay my bills. I used credit cards for most of my purchases. We're talking about thousands of dollars, each month, being reveived and spent without a single piece of currency involved.

When I bought my home, a similar thing happened. The lending bank wrote a check to the law firm handling the closing. The law firm then wrote checks to the builder of the home, the county (for registration and transfer fees) and several other parties. Although I never saw a penny of currency, everyone involved was satisfied that they had been paid. Over the following years, I wrote checks to the lending bank (as I had agreed when I signed the mortgage documents) until I had repaid what I had borrowed plus the interest.

Throughout this entire process, no currency was exchanged. Still, a LOT of money moved around.

So, to answer your gramatically incorrect question; yes, banks do lend money. They just very rarely lend cash.

Money is a matter of a function of four, can you complete the rest?

And then please explain how checkbook money could be considered money using the standard we have used for a thousand or more years.

Perhaps my six years of economics would of been better spent with experts like you.

We have a debt currency system, anyone that knows anything about it and about exponential growth knows it can not last forever. But I do think it is cute that you think you can use iou's to "pay" for something. Trading debt for products does not "pay" for it, it pushes the debt from one person to the next. It is called discharging debt, not paying debt.

[Patriotdiscussions]

Quatloos has a lot of really smart experts in some very complicated fields, law, tax etc.... and count on it, they're wicked smart and know their stuff. You can come in sincerity to ask them for advise and they'll give you the kind of answers you might pay big bucks to get from going to your local lawyer, CPA etc....

I, humbly, consider myself truly expert on this scale in not one, but two fields. I like to think I know a bit more than your average bear about the mechanics of Central Banking and I know more than anything on less than 3 legs about the business of building cars.

You have yet to ask about why the Big 3 are hiding the carburetor that allows cars to get 50 MPG (that's not even a good conspiracy anymore, my car really does get nearly 50 MPG nowdays), but I do hold out hope....when your banking delusions get interesting I'll bother to answer you squash you like a bug.

But you're not really even close to that yet.

In reality experts do not have time to get on here because they have paying clients fighting for each minute of their day, but good try.

[Patriotdiscussions]

....the banks do not loan "money"


What they do when they make loans is to accept promissory notes in exchange for credits they make to the borrowers' deposit accounts.


Now is the fed bank publication wrong or are you wrong?

You just flunked the college course on Money and Banking. The borrower's deposit account is MONEY.

You are thinking of paper currency and current coins. Those are indeed kinds of money. But those are not the only kinds of money.

Money in the true, technical economic sense includes the liability that the bank owes to its customer -- in the form of a deposit account. The balance in your checking account is money.

The "fed bank" publication is correct -- and you, "Patriotdiscussions," are wrong. In part, this is because you don't understand the basic concepts.

Yes, the banks loan money. If the bank has you sign a promissory note for $1,000 and, to fund the loan, sets up a checking account for you for $1,000, the bank debits an asset account called "loans receivable" (or some such similar name) on its books, and credits a liability account (let's call it "checking account for Patriotdiscussions") for $1,000. That checking account balance is MONEY in the technical economic sense. It is a "demand deposit" account, and it is a liability that the bank owes to you. That is its legal significance, that is its economic substance, and that is how the bank is required to account for it in the audited financial statements of the bank.

There is no paper currency or current coin involved at this point, but the checking account balance is MONEY.

Go to college and take a course called Money and Banking.

Already read the book professor wanna be.

I think it is great that you believe your account is filled with money, tell me professor if everyone in the us wanted to get their "money" out of the bank at 9am today, what would happen?

Acting like digits on a screen is money does not make it so. A solar flare could knock out the banks computer system, think you could convince the guy at the store you have money to buy food when your card won't work?

Trying to use words like money interchangeably with debt does not make debt into money son. Being a lawyer you should know every word in law means something, hence the definitions page for every title,chapter and sometimes sub paragraph in us code and state regulation.

Now law boy, am I the issuer

Ucc 3-105


(a) "Issue" means the first delivery of an instrument by the maker or drawer, whether to a holder or nonholder, for the purpose of giving rights on the instrument to any person.

(c) "Issuer" applies to issued and unissued instruments and means a maker or drawer of an instrument.

Of the first funds transfer?

[Patriotdiscussions]

A promissory note is exactly that, a public written PROMISE to pay back a sum certain of money usually plus interest borrowed from a lender, possibly with attached conditions.

In real estate transactions, the note is almost always backed up by a Trust Deed to the benefit of the lender in case the borrower defaults.

The value of the note is dependent upon the borrower paying back the money borrowed and usually plus the interest on the funds borrowed. Otherwise it is just another piece of paper.

A promissory note is a negotiable instrument, the law of negotiable instruments does not agree with your "just a piece of paper" aspect, of course if this was the case what would a holder in due course be holding then?

[Famspear]

Quatloos has a lot of really smart experts in some very complicated fields, law, tax etc.... and count on it, they're wicked smart and know their stuff. You can come in sincerity to ask them for advise and they'll give you the kind of answers you might pay big bucks to get from going to your local lawyer, CPA etc....

I, humbly, consider myself truly expert on this scale in not one, but two fields. I like to think I know a bit more than your average bear about the mechanics of Central Banking and I know more than anything on less than 3 legs about the business of building cars.

You have yet to ask about why the Big 3 are hiding the carburetor that allows cars to get 50 MPG (that's not even a good conspiracy anymore, my car really does get nearly 50 MPG nowdays), but I do hold out hope....when your banking delusions get interesting I'll bother to answer you squash you like a bug.

But you're not really even close to that yet.

In reality experts do not have time to get on here because they have paying clients fighting for each minute of their day, but good try.

No, in reality experts do have time to get on here in the Quatloos forum and post here, because experts can manage their own practices. No, experts don't have to be "fighting for their clients every minute of their day." One of the effects of having practiced in a given field for a long time is that one accumulates knowledge and ability. People are willing to pay big bucks for that. That means in part that successful experts can manage their own time, charge big fees for the clients they do want, and be choosy about how much time they spend helping clients.

I have been designated in federal court as an expert on taxation, and no, I don't have to spend every minute of my day fighting for paying clients.

But, good try.

[Famspear]

Already read the book professor wanna be.

Well, then you need to go back and read it again.

I think it is great that you believe your account is filled with money, tell me professor if everyone in the us wanted to get their "money" out of the bank at 9am today, what would happen?

In the case of a run on the banks, the banks would be in trouble.

Clue for you, Einstein: The mere fact that the bank doesn't hold paper currency and coin equal to the amount of its demand deposit liabilities does not make the demand deposit liabilities not be "money."

cting like digits on a screen is money does not make it so.

And pretending that you can make up your own definition of "money" does not make a demand deposit not be "money."

The world is the way it is, regardless of what you believe about it.

Trying to use words like money interchangeably with debt does not make debt into money son.

Yes, it does. Bank debt in the form of demand deposits is money. You don't get to determine what is "money" and what is not. And I'm not your "son," son.

I suspect that I was studying this stuff when you were in diapers.

[Famspear]

Oh, and Patriotdiscussions: If I were you, I wouldn't try to parse the Uniform Commercial Code. You might hurt yourself.

[ontobserver]

I think it is great that you believe your account is filled with money, tell me professor if everyone in the us wanted to get their "money" out of the bank at 9am today, what would happen?

You are correct that a run on the bank would mean that it wouldn't have the money available to give everyone all of their money at one time. The bank would need time to sell its assets (promissory notes, etc) to convert them to money.

If it was a requirement that banks be able to give everyone every cent of they are owed at any time, it would be impossible for a bank to make a single loan. Most people understand that a bank doesn't have the cash on hand to pay back everyone at once, however they are very happy that banks are able to lend them money so they can borrow to buy a house, grow their business, etc.

[notorial dissent]

I know this may be concept you've never encountered as is made obvious by your questions, but there is these things called books and ledgers, real old school I know, but still, that all banks and financial institutions keep. Admittedly they keep them primarily on line as it is easier to deal with than the paper version, but they still make paper versions as well, and/or at least fiche or micro back up copies of all their ledgers on a regular basis just so in the case of something like Y2K or that magic EMP blast, that they have something to fall back on to show who owns what in the bank.

Actually, in response to the question you actually asked, they would be quite simply told NO!!!! If you bother to read(a difficult concept I know, but life's tough) the account agreements that go with the demand deposits, they all state very plainly that the bank has the right to limit the amount of cash that can be withdrawn in any one day or period. They could on the other hand receive a check for the amount in their accounts.

No bank, since the beginning of banking, has kept all of their account liabilities on hand in cash, if they did, they wouldn't be a bank, they would be a depository, and you would pay for the privilege of them holding your funds for you. They are called a bank for a reason, adn if you choose to deposit your money with them also comes certain restrictions. Don't like it, tough, keep it under your mattress.

True, promissory notes as well as stock certificates are considered to be negotiable instruments, always provided they meet certain requirements, but whether they are of value and actually negotiable or just a piece of paper with pretty printing on it is wholly dependent upon the underlying value of that piece of paper. Some stock certificates are worth thousands of dollars each, Berkshire Hathaway for instance, others not worth the paper they're printed on, Enron for instance. Same for PN's, some are worth their face value, and some aren't anything more than birdcage liner, i.e. a piece of paper.

[AndyK]

Clearly, Patriotdiscussions has never written a paper check or received a paper check in his entire lifetime.

If he had, he would recognize that there are forms of money other than government-issued currencies.

On the other hand, he is probably aware of the situation but chooses to ignore it since acceptance of reality would blow major holes in each of his arguments.

[Prof]

Clearly, Patriotdiscussions has never written a paper check or received a paper check in his entire lifetime.

If he had, he would recognize that there are forms of money other than government-issued currencies.

On the other hand, he is probably aware of the situation but chooses to ignore it since acceptance of reality would blow major holes in each of his arguments.

And, he apparently did get lost in the UCC. Article 3, which he quoted above, regulates "Negotiable Instruments" and is limited, essentially, to promissory notes -- an unconditional promise or order to pay a fixed sum with or without interest or other charges" which is payable either on demand or on a date certain. Promissory notes are in writing but are not money, which the UCC, at Art. 1 defines as a medium of exchange currently authorized by a government.

Checks are regulated by Article 4, Bank Deposits and Collections, while Funds Transfers -- usually electronic and between banks -- are governed by Art. 4A.

Law schools used to teach a course called "payment systems" -- which has fallen out of favor -- which dealt with the law of the myriad of issues that arise as electrons fly about the planet transferring wealth hither and yon.

In any event, while any one of the myriad of notes lying around in banks, desk drawers, safety deposit boxes, and the like my have great or even gigantic value, none are "money" and all are just promises to pay money.

Checks, on the other hand, while if improperly made can become notes (e.g., post-dated checks are generally considered notes or promises to pay in the future and not checks), are generally ways of just transferring money without being reduced to using armored cars. Electronic transfers are ways of transferring money without having to resort to transport planes or train cars.

A bank deposit created upon deposit of a pay check is a way of representing the Bank's obligation to either give you cash or give a person to whom you are transferring money either cash or a new electronic notation.

Put simply, the UCC has nothing to do with the meaning of or definition of money -- it is just about transferring money or the obligation to pay money in the future around the economy.

All of this is sort of counter intuitive and requires a lot of experience and study. Having taught the UCC and payment systems at two law schools and having practiced in the area, I consider myself something of an expert.

Which comes back to the area of economics, and area is which Gregg is one of the resident experts. He can best explain "money" and "money supply" and the various money issues of interest to economists.

[davids]

I can't claim to be an expert on the level with some here. But I do have degrees in both economics and law. As a semi-recovered libertarian, I am also familiar with certain fringe (or if that word offends - "less than widely accepted") theories that float around the sovereign-fake-law-o-sphere. Patriotdiscussions evidences not having an understanding of even undergraduate economics, certainly no significant understanding of law (other than he knows what Blacks' Law Dictionary is, in its Fifth Edition form, and knows that in theory natural rights come from the creator).

Patriotdiscussions' prognosticating, however, tracks 100% with wacko sovrun theory, including in places where it directly contradicts actual legal and economic knowledge. I therefore call bullshit on his claim to have studied economics for 6 years. Unless he is claiming that 6 years of youtube videos and reading bad internet forums in his undies down in the basement counts for a credentialed college. And I'm thinking he doesn't have that, either.

[Judge Roy Bean]

...
Which comes back to the area of economics, and area is which Gregg is one of the resident experts. He can best explain "money" and "money supply" and the various money issues of interest to economists.

The problem with economists is they rely far too much on the pseudoscience of statistics, which was developed basically to pervert sound mathematics. How else can they explain their inability to explain the inexplicable?

(1) If you took all the economists and laid them end-to-end around the earth it would be a good thing.

(2) If three economists went deer hunting and the first one fired and missed to the left and the second one fired and missed to the right, the third one wouldn't fire; he'd cheer, "We got it!"

(3) How do you tell the difference between an economist and someone suffering from acute senile dementia?
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The economist is holding a calculator.

(4) Economic waste: A busload of economists going over a cliff with a few empty seats.

[Gregg]

...
Which comes back to the area of economics, and area is which Gregg is one of the resident experts. He can best explain "money" and "money supply" and the various money issues of interest to economists.

The problem with economists is they rely far too much on the pseudoscience of statistics, which was developed basically to pervert sound mathematics. How else can they explain their inability to explain the inexplicable?

That's part of our evil plan, its kind of like religion, there is no "right answer" and hence, we're never wrong!

(1) If you took all the economists and laid them end-to-end around the earth it would be a good thing.

(2) If three economists went deer hunting and the first one fired and missed to the left and the second one fired and missed to the right, the third one wouldn't fire; he'd cheer, "We got it!"

(3) How do you tell the difference between an economist and someone suffering from acute senile dementia?
.
.
.
.
.
.
.
The economist is holding a calculator.

I'm a polymath so I don't use calculators, but in general I have to agree with that one

(4) Economic waste: A busload of economists going over a cliff with a few empty seats.