Oh dear. BoE in their blog have a different idea to you, from
their official
blog:
http://bankunderground.co.uk/2015/06/30/banks-are-not-interm...
> In the simple ILF model, bank loans represent the intermediation of real savings, or loanable funds, between non-bank savers and non-bank borrowers. Lending starts with banks collecting deposits of real resources from one agent, and ends with the lending of those resources to another agent. In the real world, however, banks never intermediate real loanable funds,
> Rather, the key function of banks is the provision of financing, meaning the creation of new monetary purchasing power through loans ... The bank therefore creates its own funding, deposits, through lending. It does so through a pure bookkeeping transaction that involves no real resources
Read the whole thing. Digest it and don't get caught just trying to win an argument with a guy on the internet.
We are now through 2 layers of falsehoods.
Layer 1: there is a fixed amount of money
Layer 2: reserves and money multipliers
From the end of the article:
> To summarize, banks are not intermediaries of real loanable funds, they do not collect new deposits from non-bank savers. Instead they provide financing, they create new deposits for their borrowers. This involves the expansion or contraction of gross bookkeeping positions on bank balance sheets, rather than the channelling of real resources through banks.
http://bankunderground.co.uk/2015/06/30/banks-are-not-interm...
> In the simple ILF model, bank loans represent the intermediation of real savings, or loanable funds, between non-bank savers and non-bank borrowers. Lending starts with banks collecting deposits of real resources from one agent, and ends with the lending of those resources to another agent. In the real world, however, banks never intermediate real loanable funds,
> Rather, the key function of banks is the provision of financing, meaning the creation of new monetary purchasing power through loans ... The bank therefore creates its own funding, deposits, through lending. It does so through a pure bookkeeping transaction that involves no real resources
Read the whole thing. Digest it and don't get caught just trying to win an argument with a guy on the internet.
We are now through 2 layers of falsehoods.
Layer 1: there is a fixed amount of money
Layer 2: reserves and money multipliers
From the end of the article:
> To summarize, banks are not intermediaries of real loanable funds, they do not collect new deposits from non-bank savers. Instead they provide financing, they create new deposits for their borrowers. This involves the expansion or contraction of gross bookkeeping positions on bank balance sheets, rather than the channelling of real resources through banks.