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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (49305)	1/9/2006 10:29:44 PM
From: basho	Read Replies (2) \| Respond to of 110194

Sorry about that, Tommaso, you're quite right to want direct quotes. In the article from which the quote you highlighted was taken, he says some pages later: "Although demand deposits result from claim transactions, banks are legally permitted to regard them as the outcome of credit transactions. The legal precedent for this was set in 1811 in England with Carr v. Carr. The court had to decide whether the term “debts,” mentioned in a will, included a cash balance in a bank deposit account. The judge, Sir William Grant, ruled that it did. Grant ruled that since the money had been paid generally into the bank and was not earmarked in a sealed bag, it had become a loan to the bank (Rothbard 1983, p. 93). So, if demand deposits are legally considered credit, how can we regard them as part of the money supply?" (p 6 in the pdf file you can access from the URL below) "In short, when a depositor places his money in a savings or fixed-term deposit, he temporarily relinquishes his ownership. This, however, is not the case with demand deposits. As long as the bank does not use the money in demand deposits, it is backed one-hundred-percent by the deposited cash. Whenever banks lend part of the deposited money, they create new demand deposits that do not have any cash backing. Since the created deposits can masquerade as proper representatives of cash, they should be included as part of the money supply." (ibid p 7) mises.org