alanjjohnstone wrote:Graeber

[ALB]

alanjjohnstone wrote:

Graeber in the Guardian seiing on the reporthttp://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity

Graeber overstates his case that bank loans are essentially IOUs. They can be seen as this from one point of view but this doesn't mean that banks can issue IOUs at will without being able to cover them. A bank which did this would soon go under, as the Bank of England article explicitly explains.He distorts what the article says when he writes:

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What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow.

Most of the article is devoted to describing in detail the various limits to banks' lending (including having to find new outside deposits or loans from other banks and others to remain profitable) which are well below what people want to borrow.

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Just consider what might happen if mortgage holders realised the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it.

This is pure currency crank nonsense. What a bank or building society lends to someone to buy a house is covered by assets which really exist, whether from "the life savings of some thrifty pensioners" or from what the financial institution has itself borrowed at a lower rate of interest. Graeber needs to explain what banks do do with savings people deposit with them if they don't re-lend them. The Bank of England article says:

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banks do not act simply as intermediaries, lending out deposits savers place with them

Graeber seems to have deleted the word "simply".