[OPE-L:2027] Re: [MIKE WILLIAMS] electronic money

Duncan K Foley (dkf2@columbia.edu)
Mon, 29 Apr 1996 08:47:04 -0700

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On Sun, 28 Apr 1996, Paul Cockshott wrote:

> Riccardo
> >> A view which is in deep contrast
> >> with the idea that loans make deposits - hence it is wrong, unless you show
> >> me that the banking sector is able to collect deposits before making a loan
> >> (here Steve K. post is relevant).
> >
> Duncan
> >In fact U.S. banks for the last 15 years have been financing marginal
> >loans by the sale of Certificates of Deposit and commercial paper at
> >market rates, not by the expansion of deposits.
> >
> Paul
> I am not sure that this answers his objection. The point would be that
> the ability to sell certificates of deposit is constrained by the
> overall balances in the sector financial accounts to be the
> difference between the growth of deposits and loans advanced.
>

The point I was trying to address was the broader one of whether it is
appropriate to view bank deposits (or state currency) as a "forced
circulation", which the public has to accept. The example of the recent
experience in the U.S. shows that the banks cannot always issue deposits
and have the public accept them, and as a result have to result to other
forms of liability issuance, such as commercial paper, where the
character of the loan and the constraint of demand are transparent.

The overall balance in the sector financial accounts seems to me to be ex
post, not ex ante.

Duncan

>
> Paul Cockshott (clyder@gn.apc.org)
>
>
>
>