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The great 'living within our means' con
Topic Started: 8 Dec 2016, 11:05 AM (4,575 Views)
Rufus
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Simon_S
8 Dec 2016, 10:12 PM
So the debt creates the credit.......

So one cancels the other out?
Yes all money and debt net to zero.
That is the basis of double entry bookkeeping, on which our monetary system is based.

Those who don't grasp accounting don't grasp the system, and many economists don't grasp accounting.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Simon_S
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Rufus
8 Dec 2016, 11:43 PM
Yes all money and debt net to zero.
That is the basis of double entry bookkeeping, on which our monetary system is based.

Those who don't grasp accounting don't grasp the system, and many economists don't grasp accounting.
So why doesn't Double Entry Book keeping prevent banks and individuals from going Broke.....






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stinkbug
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Simon_S
9 Dec 2016, 06:59 AM
So why doesn't Double Entry Book keeping prevent banks and individuals from going Broke.....





Because banks and individuals aren't the whole system. The money has to end up somewhere.

Bear in mind that from the perspective of banks, prime home loans are valuable, performing assets.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Rufus
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Simon_S
9 Dec 2016, 06:59 AM
So why doesn't Double Entry Book keeping prevent banks and individuals from going Broke.....





There is nothing wrong with people or entities going broke. It's a natural process in our system.
Someone gets into difficulty, they enter bankruptcy, the debts get written off or written down depending on which bankruptcy path they take, and in due course they exit bankruptcy.

The same for banks, but the problem governments have with banks is that if a major bank fails the people who suffer are the banks customers, and anyone relying on the interbank money transfer system, and that's pretty much all of us, and a government's responsibility is to look after the citizens, so allowing a bank to fail is contrary to it's political and social objectives. It's against the national interests.

A government then has to look at what the bank needs, which might be minimal short term assistance, or if it's in serious trouble the bank may have to be nationalised or merged with a stronger bank as many were here and overseas during the GFC.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Sydneyite
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Simon_S
9 Dec 2016, 06:59 AM
So why doesn't Double Entry Book keeping prevent banks and individuals from going Broke.....
If *your* personal credits and debts match exactly all the time, then yes that does prevent you from going bankrupt! In fact personally even if your debts are > your credits you are still not "bankrupt" as long as you have income / the capacity to make contracted repayments of your debts.

You would think also that a bank can go broke because they do not have enough funds (central bank exchange settlement account balance) to meet their daily net payment settlement obligations. Of course in the case of a shortfall, a licensed bank can simply go to the overnight cash/repo market and borrow any shortfall in ESA funds overnight at the RBA target cash rate - and if the system as a whole is short of funds then the RBA will inject as much new money as required to make up the shortfall. So technically even being short on required ESA balance will not send a licensed bank "broke" - as long as they maintain the required capital ratios to be considered solvent and to support their overnight borrowing / repo agreements. This is what makes banks "special" and why they are heavily regulated. Ie, to stop them abusing this privileged position, banks are *required* to keep those defined levels of capital available at all times, based on a ratio of their loan assets - if they fall below the minimum capital requirements, then they *are* insolvent (or broke), and must cease trading, and appropriate actions will be taken by the regulators, RBA etc.
Edited by Sydneyite, 9 Dec 2016, 09:35 AM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Simon_S
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Great then Double entry Book keeping is ultimately meaningless when it come back to the real world.

Thanks for that.
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Trollie
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Ex BP Golly
8 Dec 2016, 07:45 PM
Suck it up dude, and find another example that doesn't make you sound like a tantrum throwing child who is told he can't eat all his lollies at once.
I'm not the one here who's chucking the tantrum. I'm just pointing out the facts and you're refusing to accept them.
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stinkbug
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Simon_S
9 Dec 2016, 09:45 AM
Great then Double entry Book keeping is ultimately meaningless when it come back to the real world.

You've missed the point. Double entry bookkeeping means that for every debt there's an asset. The 'real world' needs to mean the whole system.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Simon_S
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stinkbug
9 Dec 2016, 09:55 AM
You've missed the point. Double entry bookkeeping means that for every debt there's an asset. The 'real world' needs to mean the whole system.


Not at all.

What you forget is the Asset value falls but the Debt still remains. Or are you saying that their value always corresponds?

So when the Asset value falls so does the Debt?
Edited by Simon_S, 9 Dec 2016, 10:01 AM.
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Ex BP Golly
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stinkbug
9 Dec 2016, 08:51 AM
Because banks and individuals aren't the whole system. The money has to end up somewhere.

Bear in mind that from the perspective of banks, prime home loans are valuable, performing assets.
We should bear that in mind.

Alternatively, non prime loans aren't valuable performing assets.

I thank you for your remarkable insights.


Trollie
9 Dec 2016, 09:48 AM
I'm not the one here who's chucking the tantrum. I'm just pointing out the facts and you're refusing to accept them.
There was no fact there. Superannuation contributions are your money, and they are placed into your account.

Come on dude, find another excuse for why the government is forcing you to take on debt.

Where is this smoking gun?
Simon_S
9 Dec 2016, 09:57 AM


Not at all.

What you forget is the Asset value falls but the Debt still remains. Or are you saying that their value always corresponds?

So when the Asset value falls so does the Debt?
You obviously haven't been to enough property seminars if you can't understand this stuff :wink
Edited by Ex BP Golly, 9 Dec 2016, 10:07 AM.
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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