Oddbean

@43d7c4ea To make a profit you also need to lend at a rate higher than what you have to pay to borrow the money. Mortgages fixed for 5 years are a bet on future interest rates. If those mortgage rates are going down its a prediction that interest rates will fall, by people who are putting their money where their mouths are.

@f915ade0 There's an interesting issue here about credit creation & how it is understood. See the article by Steve Keen below which explores this debate & concludes that money (and thereby credit) can be (and is) created by banks (in this case mortgage lenders) without the need to borrow from elsewhere. https://www.forbes.com/sites/stevekeen/2015/02/28/what-is-money-and-how-is-it-created/

@43d7c4ea Houses aren't liquid assets, but if we put some of our savings into shares then we have exchanged our money for (a share of) property that isn't money. But we haven't lost that money, and we can easily get that money back by selling the shares. Shares aren't money, but they look a lot like money. There is a parable about a rich man who visited an island and paid by writing cheques. The islanders never bothered to cash the cheques, but just treated them like bank notes. /2

@f915ade0 it can exist on both sides of the balance sheet (as an accounting identity) - it is both a liability (in that the money has to be paid out) and an asset (because it is generating an income from repayments. So as long as banks can find willing (and relatively safe lenders), the two sides of the balance sheet cancel out, meaning they can issue more & more loans without worrying about capital sufficiency. Its only when people stop paying the accounting identity fails 2/2 - but 1 more

@43d7c4ea I also disagree with the notion that a commodity-based money equates to a barter economy (if I understand the article correctly). An actual exchange of gold for food is indeed barter, but as soon as loans are made you have the creation of new money that isn't gold. The original "bank notes" were effectively IOUs issued by banks; hence the "promise to pay" language on them. But they promptly became money, exchanged just like the gold they supposedly represented. /6

@f915ade0 The article I linked to was a quick (not necessarily the best) choice... For me responding to your thread, a couple of key points: Banks are specialised institutions empowered by the state to create credit - which is why you cannot lend me £1m because you are not a specialised institution empowered by the state. However, Keen's key point (which appear late on in the article), is provided the loan is 'performing' - the borrower is paying the instalments... 1/2

@f915ade0 So, banks can create credit (money) by finding willing borrowers - while even Central Bankers seem to miss this sleight of hand, more recently a paper from the BoE did recognise & agree with Keen's argument. The key thing is the money supply is no longer really in the Govt's control, and interest rates more by what would be needed to be borrowed to cover the position if a loan defaults, than a direct immediate causality - hence rates dropping while mortgage lenders see borrowers