Neil Skaggs writes: 
 
"James Ahiakpor doubts that banks can create credit to finance real 
production because their assets never exceed their liabilities.  His 
response totally misses the point.  Consider:  The Bank of Scotland begins 
with stlg100 in cash (gold), stlg900 in loans, stlg900 in notes 
outstanding, and 
stlg100 in capital (previously saved by the shareholders).  It then moves 
into 
the Highlands, as described by Macleod.  On the security of tenant leases, 
the Bank issues another stlg100 in small notes on loan.  Of course, since a 
balance sheet must balance, both assets (loans) and liabilities (notes 
outstanding) increase by stlg100.  The Bank's reserve ratio falls from 1/9 
to 
1/10." 
 
Response: 
 
Neil fials to start with a complete balance sheet.  If notes  
outstanding are the equivalent of loans, as I believe they must be,  
all he has stated constitutes the Assets side of the balance sheet.  
We need the Liabilities (deposits or savings) side too.   
 
It is also interesting that Neil works with 100 pounds, which can  
be accommodated with either the reserves or bank capital  
(shareholders' savings).  Had he tried with a higher number, he  
would have found the impossibility of what he is asserting.   
 
Also, from where does the bank get the 100 pounds to keep as  
reserves, if not from depositors (savings)? 
 
So I concluded: Keep working at it, Neil.  You are coming closer to  
accepting the reality of banking and finance.  When you've answered  
the points I've noted above, I hope you would have come finally home. 
The point is that banks as FINANCIAL INTERMEDIARIES lend that which  
is deposited with them by savers, even so, not all of the amounts. 
  
James Ahiakpor