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The Zero Sum Financial Equation
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Steve Keen considers the following as important:
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The Zero Sum Financial Equation
Topics:
Steve Keen considers the following as important:
This could be interesting, too:
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| The Zero Sum Financial Equation |
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I always miss the explanation, why liabilities and assets are zero sum and why it has to be this way.
For the same reason that for every seller, there is a buyer. It most definitely is not what economists mean by "equilibrium", though they often think it is. But when you add the effect on the buyer's financial assets from buying the product to the effect on the seller's financial assets, you get zero.
@@ProfSteveKeen but it does not explains it fully. You economists do stay always at the surface.
Selling something is a loss. Buying something is the opposite. So the buyer owes to the seller. This is where the debt origins and where money is created, because it represents this debt. So the asset of the seller is the liability of the buyer to sell too and therefore to accept the money too which is why the bank demands to return the money it creates without efforts.
Which also means, that the buyer needs to fulfill the specific demand of the seller too.
Because of this, "securities" are not assets to the banks since they did fulfill the demand of the debtors (buyers) but do not fulfill the demand of the creditors(sellers) who sold them to the debtors which is why the subprime bubble did burst: the banks basically did try to sell the houses to the debtors a second time to get the money from them they did not have and could not get because they were unable to sell.
Since banks are only intermediates, their only asset is the ability of the debtors to produce and sell what the creditors demand since selling cancels the debt.
Bait clip, I'll bite. You are correct if you bought your assets with a promissory note. The premise is null if you bought any asset outright
He specified ‘financial assets’ so he’s not wrong. If you grow a bushel of wheat, that’s called production, your net wealth is increased. A mortgage, on the other hand, creates nothing.
Said a whole lot without saying anything