Friday 23 September 2011

The government prints money when loans are made

It is the government not the banks which issue money when loans are made. The government replaces bank credit with government-guaranteed credit, which enables the banks to release the cash into the economy.

The government prints money when a bank makes a loan

The banks are in too much debt to fail

Banks do nothing more than get free money from the government

Thursday 1 September 2011

A balance sheet will not balance if the equity is not adjusted to reflect profit and loss

From Wikipedia (Balance sheet) 1st September 2011 ‘Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing."’

The balance sheet will balance, assuming there has been some business activity which has resulted in either a profit or a loss, only if the ownership equity is adjusted accordingly. If the equity is left static then a profit to the company (an increase in assets which is not offset by an equivalent increase in liabilities) will result in a violation of the accounting equation. If the accounting equation is not to be violated then the equity must be adjusted accordingly... upwards in the case of a profit, so that it will no longer still reflect the original injection of investment.