JP Morgan's Coffee Machine
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JP Morgan's Coffee Machine
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Re: JP Morgan's Coffee Machine
#2I am far from a bank expert, so I could very well be wrong, but this article doesn't pass my smell test.
Banks as businesses have all kinds of expenses. Coffee machines, employee salaries, etc. I can't imagine the money for those expenses come from reserves (the money that customers deposited) or newly created money. The banks expenditures must come from their revenues, just like any other business, right?
The bank gives someone a loan, which is indeed new money. The person pays that loan back with interest. That interest goes into the bank's bank account, so to speak. Those are revenues. Similarly, a customer overdrafts their account has has to pay a fee. That fee is also revenues.
If the bank wants to buy a coffee machine, it is deducting the cost of that coffee machine from the account where it keeps its revenues. That's not new money, is it? And, like any other business, whatever money is left in that account after expenditures are the bank's profits.
I could very well be wrong on this one, but it just makes a lot more sense than what this blog post is saying.
Re: JP Morgan's Coffee Machine
#3I am far from a bank expert, so I could very well be wrong, but this article doesn't pass my smell test. Banks as businesses have all kinds of expenses. Coffee machines, employee salaries, etc. I can't imagine the money for those expenses come from reserves (the money that customers deposited) or newly created money. The banks expenditures must come from their revenues, just like any other business, right? The bank g…
I'm with you -- this makes no sense to me. Banks pay for their operating expenses using ... their operating cash! Most of it comes from return on reserves, fees, and the like.
Re: JP Morgan's Coffee Machine
#4I am far from a bank expert, so I could very well be wrong, but this article doesn't pass my smell test. Banks as businesses have all kinds of expenses. Coffee machines, employee salaries, etc. I can't imagine the money for those expenses come from reserves (the money that customers deposited) or newly created money. The banks expenditures must come from their revenues, just like any other business, right? The bank g…
JPM’s bank account at JPM is:
* an asset for the account holder, i.e JPM, and
* a liability for the bamk, i.e. JPM,
so one can cancel them out.
As a matter of fact banks have accounts for themselves, to facilitate administration and accounting for departments/branches/etc, but these accounts have, from an accounting point ov view, essentially no effect.
Re: JP Morgan's Coffee Machine
#5I am far from a bank expert, so I could very well be wrong, but this article doesn't pass my smell test. Banks as businesses have all kinds of expenses. Coffee machines, employee salaries, etc. I can't imagine the money for those expenses come from reserves (the money that customers deposited) or newly created money. The banks expenditures must come from their revenues, just like any other business, right? The bank g…
I think the example might be contrived but the point was that any bank operation eventually comes back to the settlement layer being reserves and since those get settled at a later time an opportunity for money creation mechanism presents itself and occurs. It’s not that the banks want to cheat it’s just a by product of the system.
Re: JP Morgan's Coffee Machine
#6I am far from a bank expert, so I could very well be wrong, but this article doesn't pass my smell test. Banks as businesses have all kinds of expenses. Coffee machines, employee salaries, etc. I can't imagine the money for those expenses come from reserves (the money that customers deposited) or newly created money. The banks expenditures must come from their revenues, just like any other business, right? The bank g…
As a fellow non bank expert, I feel like the problem with the article is more fundamental than that.
Suppose JP does indeed buys stuff with and only with its reserves. Now JP starts new initiative under the slogan 'Buy the US', with the intention of buying all the building in the US, one after the other.
The first building the one next to JP, and JP pays it from its reserves. According to the article, no change in JP sheets results from the deal. So JP goes on with its buying spree, and now JP owns every building in Manhattan, then NYC, NY, then comes Vermont and so fourth.
Well, there is a problem with that initiative. At some point JP have no more reserves, the accounting are not conforming to banking standards and requirement and it is no longer a bank. Therefore, I will argue, something must change in JP sheets with every building or coffee machine it purchases, and the article is missing it.
Re: JP Morgan's Coffee Machine
#7of course in reality JP will lease the machine rather than buying it
hell my employer (also a bank) rents its expensive multi-function taps
Re: JP Morgan's Coffee Machine
#8Not even close.
>What exactly is this money, and how is it created?
It's not created. While banks do have the capacity to "create" money by lending they are also are an actual business. i.e. it's not their only source of money
They charge people a transaction fee and use said revenue to pay salaries and buy coffee machines. Just like any other biz.
There are also strict client money rules to keep the business side and the lending side separate.
Re: JP Morgan's Coffee Machine
#9I am far from a bank expert, so I could very well be wrong, but this article doesn't pass my smell test. Banks as businesses have all kinds of expenses. Coffee machines, employee salaries, etc. I can't imagine the money for those expenses come from reserves (the money that customers deposited) or newly created money. The banks expenditures must come from their revenues, just like any other business, right? The bank g…
As a fellow non bank expert, I feel like the problem with the article is more fundamental than that. Suppose JP does indeed buys stuff with and only with its reserves. Now JP starts new initiative under the slogan 'Buy the US', with the intention of buying all the building in the US, one after the other. The first building the one next to JP, and JP pays it from its reserves. According to the article, no change in JP…
I'm no expert, but I think the missing bit is that the money 'created' is still backed by some asset, whether it's a coffee machine, a building, or a promise of future repayment (as with loans). I think that might be assumed for the audience of the blog, but it's not an obvious thing for us non-experts.
Compare with a loan. When loaning, the bank has a liability (balance in the receiver's account). That's the created money. It's balanced by the promise of payment later, plus interest.
It's not really that different to suggest that to buy a coffee machine, they're creating money as a liability (money in the coffee company's account) backed by the value of the coffee machine as a an asset.
So yes, something does change on the sheets[1] - JP now has another liability, and another asset. The limiting factor is that banks are required to have more assets than liabilities (capital) by proportion, because capital is what really gets used to pay for things like account withdrawals. The proportion JP actually has reduces as each purchase is made, which is why JP can't hold an unlimited number of coffee machines/buildings.[2]
[1] The article does actually mention this, buried in a sentence about a full analysis of JP's balance sheets.
[2] Without that requirement, if the accounts were all at JP, it could buy as many coffee machines/buildings as it wanted, but would collapse if/when the money created was withdrawn. Also see 2008.
Re: JP Morgan's Coffee Machine
#10Is this an insiders take on what is actually happening or just some bloggers fever dream? Its always hard to tell with finance.