Saturday, 23 March 2013

Money one borrower uses to pay interest created by another loan somewhere else in the economy - John M. Yetter U. S. Treasury

In answer to a letter from Byron Dale in 1982 John M. Yetter Attorney-Advisor Dept. of the U. S. Treasury said;

“Money that one borrower uses to pay interest on a loan has been created somewhere else in the economy by another loan.”

The above statement makes clear that the essence of the current method by which the private banking system issues the money supply of most every nation including New Zealand is not dependent upon the relending of the deposits of savers but the creation and extinguishment of loans.

A position further made clear by the experience of senior international supply side of money official Michael Hudson.

Michael Hudson is a former balance-of-payments economist for Chase Manhattan Bank and Arthur Andersen, and economic futurist for the Hudson Institute (no relation).

Born in 1939, Chicago, Illinois, USA is research professor of Economics at University of Missouri, Kansas City (UMKC). He is also a Wall Street analyst and consultant as well as president of The Institute for the Study of Long-term Economic Trends (ISLET) and a founding member of International Scholars Conference on Ancient Near Eastern Economies (ISCANEE).

Economic advisor to the U.S., Canadian, Mexican and Latvian governments, to the United Nations Institute for Training and Research (UNITAR), and he is president of the Institute for the Study of Long-term Economic Trends (ISLET).

[9.00] Back in the 1960s, I was Chase Manhattan Bank’s balance of payments analyst, and my job was to focus on the Latin American countries: Argentina, Brazil, and Chile, and my job was to calculate how much of a balance of payments surplus they could generate, and the idea of the bank marketing department was the entire economic surplus could be used to pay debt service to the seven major American banks.
[9:40] And pretty quickly we found out that there wasn’t any surplus to pay the banks, and there was an international department that got very upset because he said “Look, I get promoted for making loans, and the real estate guys are making all the loans, you’re telling us they can’t afford to repay!” And he took it up to David Rockefeller, we went across the street to the Federal Reserve bank, and the Federal Reserve bank said “It’s in America’s interest to make these loans to Latin America. Mr. Hudson, according to your calculations, Britain can’t afford to repay any more.” I said “That’s right. I don’t see any way in which it can get the money to repay the debt.” And the Federal Reserve man said “Ah! But did you take into account the fact that the US Treasury is always going to lend Britain the money to pay? We will never let it go down.” I said, “Well, that’s a deus ex machina from outside the system. Yes, you can lend them the money to repay.”

Mr. Alan R Holmes was Senior Vice President, Federal Reserve Bank of New York.

Mr. Holmes had worked for 33 years at the Federal Reserve Bank of New York, where from 1965 to 1979 he was manager of the Federal Reserve System Open Market Account. In that position, he was responsible for the creation of money in the United States.

1969 speech – Operational Constraints On Stabilization of Money Supply

"The idea of a regular injection of reserves-in some approaches at least-also suffers from a naive assumption that the banking system only expands loans after the System (or market factors) have put reserves in the banking system. In the real world, banks extend credit, creating deposits in the process, and look for the reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand; over time, its influence can obviously be felt. In any given statement week, the reserves required to be maintained by the banking system are predetermined by the level of deposits existing two weeks earlier."

Just a little different to the officially sanctioned lie we are told about banking being reliant upon the re-lending of someones hard earned savings!

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