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Forum Post: Understanding banking and how you get screwed:

Posted 2 years ago on May 23, 2012, 9 p.m. EST by john23 (-272)
This content is user submitted and not an official statement

This website lays it out pretty easily:

www.hmscoop.com

103 Comments

103 Comments


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[-] 4 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

Your website is wrong and is just perpetuating common myths about how banking works. Here is what the site said:

"Suppose you own all the money in an imaginary economy ($1,000) and you deposit this $1,000 in the bank...Here is the criminal part – the portion of your money it loans out to a 3rd party is created as new money on its books which inflates the money supply. So say the bank loans $900 of your $1000, and the remaining $100 of your money has to stay at the bank in its vaults (as reserves). Now the money supply is $1,000+$900 = $1,900"

This is wrong.

The money supply has not increased. The bank has not created new money!

When you deposit $1000 in Bank A and the bank loans out $900 of it, which gets deposited in Bank B, Bank A's total deposits was reduced by $900! You would have $100 in Bank A and $900 in Bank B.

The money supply has not increased. It is still $1000.

If you wrote a check for more than $100 on your $1000 account at Bank A, the Fed would force Bank A to borrow the difference from Bank B. That is the way the law works in our current system.

[-] 2 points by PublicCurrency (1387) 2 years ago

The bank hath benefit of interest on all moneys which it creates out of nothing.” William Paterson, founder of the Bank of England in 1694, then a privately owned bank.

“Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.” – Sir Josiah Stamp, Director of the Bank of England (appointed 1928). Reputed to be the 2nd wealthiest man in England at that time.

“Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild.

“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.” John Kenneth Galbraith (1908- ), former professor of economics at Harvard, writing in ‘Money: Whence it came, where it went’ (1975).

[-] 2 points by jph (2652) 2 years ago

uhmm,. MF Global, Jon Stevens Corzine,. 1.5 billion mi$$ing from customer accounts,. and ZERO prosecutions. Sure the Fed is doing a great job of keeping the banksters on the up and up!! Why are you defending an indefensible system of exploitation? What is your stake in that game? The whole monetary system is a ponzi pyramid scam,. it requires endless new DEBT. that is why it is failing now,. the debt creation fell off, and there is nothing to feed the debt/interest loop. where does the interest come from? how can we pay back the principle plus the interest when the interest in not created only the principle??

[-] 3 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

I am not defending anyone. I am explaining to someone how fractional reserve banking works.

Your understanding of banking is also wrong. You are not going to learn how things really work from internet conspiracy videos.

Only banking conspiracy videos claim that the economy doesn't work because the banks didn't create enough money to cover interest. You will never read that in an actual economics textbook because it is wrong. Stick to textbooks if you want to understand banking.

[-] 3 points by jph (2652) 2 years ago

you seem intent on not understanding what is said; the ponzi monetary/banking system "requires endless new DEBT",. it is people borrowing that is missing. like all pyramid scams when the bottom can not be expanded the system fails.

the fact that when the bansters create 'new money' from the new "debt" the interest is not created, and this is like the proverbial musical chairs game,. the system creates the "losers" by it's very design.

keep talking like you know more than everyone else and keep you head in your arse, it does not change the facts., the system is a scam AND it is broken,. .

[-] 3 points by webb5 (36) 2 years ago

Another bank lover shot to pieces. Great job!

[-] 1 points by shadz66 (19985) 2 years ago

"Stick to textbooks if you want to understand banking" - is probably one of the most funny and deluded lines that I've read here for some time !!! Most 'economics professionals' have only the most vague ideas about 'The Theory of Money' - in so far as they give it any thought at all !! You really need to get a clue !

Thus, please make some time to engage with some ideas that go to the heart of "OWS" :

Finally, have you ever heard of 'The State Owned' "Bank Of North Dakota" ? IF NOT - why not d'you think ? ( http://en.wikipedia.org/wiki/Bank_of_North_Dakota and http://banknd.nd.gov/ ).

radix omnium malorum est cupiditas ...

[-] 3 points by PublicCurrency (1387) 2 years ago

Excellent post shadz66 !

[-] 1 points by shadz66 (19985) 2 years ago

Thanx 'PC' & also for your information :

fiat justitia ruat caelum ...

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

"'Stick to textbooks if you want to understand banking' - is probably one of the most funny and deluded lines that I've read here for some time !!! Most 'economics professionals' have only the most vague ideas about 'The Theory of Money' - in so far as they give it any thought at all !"

You can't be serious. lol

[-] 2 points by shadz66 (19985) 2 years ago

I am being deadly serious !!! Whilst also being sarcastically ironic perhaps !! Further - please don't just narrowly, pedantically and querulously only quibble about the incidental small print - click the links and go learn something or debate some of the more substantive points therein & don't be so 'cheap' - "lol" !

ad iudicium ...

[-] 4 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

I believe capitalism, including its banking system, are bad for most people. And I'm a fan of Moyers and Aplerovitz, so I most likely agree with their viewpoints.

I read Aplerovitz's article. I agree with what he says.

[-] 3 points by shadz66 (19985) 2 years ago

Fair enough and given the subject matter of this thread and furher to my links above, I also append :

Further, I repeat a quote from J.K.Galbraith (1908-2006) : “The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.”

multum in parvo ...

[-] 2 points by john23 (-272) 2 years ago

It is amazing how simple it is....yet nobody understands it. They had a committee meeting about fractional reserves the other day and i sat and listened to a bunch of professors describe it...i know what they were talking about because i know how the system works because i've spent hours digging through stuff....but if i a hadn't...it may as well of been chinese, because they make such an easy subject sound so incredibly complex.

[-] 2 points by shadz66 (19985) 2 years ago

Given the subject matter of your 'forum-post' & this thread, I append :

  • "The Biggest Financial Scam In World History" by Washington's Blog (July 06, 2012) --- "Why Is the Libor Scandal So Important to You ? There have been numerous big banking scandals recently. But the Libor scandal is the biggest financial scam in world history." : http://www.informationclearinghouse.info/article31768.htm .

e tenebris, lux ...

[-] -1 points by john23 (-272) 2 years ago

Yeah, i've seen that. I think the biggest scandal is the fact that the government has been doing the exact same thing for over 100 years. Artificially manipulating interest rates via the federal reserve. Screwing the savers.

[-] 2 points by shadz66 (19985) 2 years ago

Consider that The FED is NOT an arm of your "government" - "the federal reserve" - is a 'The Cartel of Private Banking Corporations' & 'Usurious Compound Interest' is the key to your enslavement & root of the problem !!!

It is a mechanism of 'Capital and Wealth Extraction, Concentration and Accumulation' and underpins modern 'Hoover Up Crapitalism' - because 'Trickle Down' has now been usurped by "Hoover Up Larceny" !!

fiat justitia !

[-] 2 points by john23 (-272) 2 years ago

The Fed can be abolished by the congress...and its existence was allowed put into place by the congress. It absolutely is a creation of government.

[-] 2 points by shadz66 (19985) 2 years ago

Consider that - "The powers of financial capitalism had a far-reaching plan, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. Their secret is that they have annexed from governments, monarchies, and republics the power to create the world's money". Thus ...

and please view and calmly reflect thereafter.

ad iudicium ...

[-] 2 points by john23 (-272) 2 years ago

Yeah, i completely agree. I obviously haven't watched the whole video yet, but its on my playlist for weekly TV watching youtube video's. I watched a little of it..and from what i started i agree with it. He who controls the supply of money controls everything...even government. The Fed was enacted by the congress though...it is a monster of government....it operates on its own now...but could be abolished by government.

I wouldn't call the powers that be capitalism really.....capitalism doesn't allow for unlimited money printing and forced transactions with that currency...it doesn't allow for artificially manipulating interest rates by devaluing the currency that you're forced to use...the most important aspects of this financial system are not capitalism....its been this way for over a hundred years.

[-] 1 points by shadz66 (19985) 2 years ago

Re. 'LIBOR', I also append for your consideration :

dum spiro, spero ...

[-] 2 points by VQkag2 (16478) 2 years ago

Not that the bankers have crashed the world economy? That isn't the biggest scandal. How about that the 1% corp banksters have bought our govt? Not the biggest scandal? That the 1% conservative plutocrats have conned good honest working American familes and taken their homes/home value and their life savings. THAT isn't the biggest scandal?. How about that these criminal banksters then took huge bail outs, gave themselves huge raises/bonuses on top of already obscene salaries.? And finally illegal foreclosures, libor manipulation, and God knows what else will be found.

Put the banksters in jail take our money back. Create non profit banking option. Take our govt back. Make both (govt and banks) serve the 99%

[-] 0 points by john23 (-272) 2 years ago

Here is one of those evil conservatives you talk about warning you years before the collapse...and how was he able to spot the housing bubble? Because of government intervention in housing causing a massive over-investment in that area. Sounds kind of familiar to the student loan bubble doesn't it? Or the current bond bubble? Watch the video...it's only a few minutes long. I worked at a land development firm during a number of the years that this was occuring...it created a feeding frenzy for us and skyrocketing prices...business was great.

http://www.youtube.com/watch?v=mnuoHx9BINc

If you have a little more time watch this video...it should blow your socks off with the predictions he's made...again, one of those evil conservatives:

http://www.youtube.com/watch?v=zGDisyWkIBM

I wish people would stop treating this as a dem vs. conservative deal...there really isn't any difference. Bush was horrible.....but so is obama...take a look at your precious candidates record:

http://stpeteforpeace.org/obama.html

By saying that i'm not bashing dems...to me there are honest dems (dennis kucinich - who i respect) , just like the honest repubs who will never get a shot because the big money won't back them.

"Take our govt back. Make both (govt and banks) serve the 99%"....that's what i'm trying to do.

[-] 3 points by VQkag2 (16478) 2 years ago

Oh so its our fault businesses have moved our jobs overseas. If only we give them more tax breaks, and cut MORE regs. Please. We've done that for them. They have gotten tax break for sending jobs overseas. Cut that crap out. Better yet still I have the solution.

We grow a bigger set. Tell any corp (foreign, domestic) if they want to do business in the greatest middle class market on the planet they MUST hire Americans. Simple. If not. They get banned! Let them sell to Uruguay, or Latvia. See how quick they find a way to make a profit and be patriotic.

You don't cow tow to the people who have screwed our economy and our good honest hard working American families. THEY serve US. It is a priviledge to do business here. We don't owe them a Gd Damn thing. They owe us.?

You and I have diametrically opposed views on business. I do not worship them. I don't feel any need to do for them. If they ain't doin for us BAN them!!

Ron Paul. I've seen his sorry excuses. I don't buy it. Ain't gonna buy it. He may have some good ideas. I'm willing to listen. But I could never support him because of the racism put out under his name. Excuses not withstanding.

Doesn't matter does it?. He's just one politician. He's not runnin for anything anymore. If you know of a good Ron Paul idea I'd consider it. But his tolerance is questionable. Not my fault. His.

Peace

[-] 0 points by john23 (-272) 2 years ago

That's the thing..he didn't make any excuses (Ron Paul). Provide a video or a speech of a racist comment ever coming out of his mouth and i'll agree with you in a heartbeat. I"m very anti-racism.

Hey man, you want every business to go overseas and stop hiring people in america....enact the very plan you mentioned above. It aint rocket science...if the environment isn't conducive to business profits...they won't stay. Would you? If you had a business and were losing money and knew that if you moved overseas you could keep it afloat and once again profit....wouldn't you move? I'm not sympathetic to business...i think they're greedy money grubbing insects...just like government...that's the brilliance of it...they want your money and they want it bad. So they better do everything in their power to make you happy....you have power over them...but you're too mad about the system to see it.

[-] 2 points by VQkag2 (16478) 2 years ago

Business can make money hiring Americans. I don't buy their sorry excuses that we have too many regs, too many labor costs, benefits, Epa. Please! Ain't gonna buy that crap.

Thats BS. Many businesses do well even hiring Americans. If they want to make money (and we know they want to make money) they will sell their plastic crap here. No business makes more than they make in America. We are the prize.

Well we gotta use that leverage. If you wanna sell here (and everyone does) you will hire Americans. Have confidence. Corps ain't gonna boycott their biggest cash cow. American consumers will buy anything. Every business knows that. Like I said we gotta grow a bigger pair.

Ron Paul. He did deny the racist comments on his newsletter. You recounted his response. I saw his response. I don't buy it. Sorry. He's washed up. An old man. Done. If he has good ideas I will listen. Do you have some good Ron Paul ideas?

I don't have to support him 'cause he is not running for anything anymore. Please. the dream is over.

Oh and I'm not too mad to see anything. I wish we could have mass boycotts, strikes, business disruptions. That WOULD work. But there aren't enough of us struggling I guess. (8% unemployment (really 20%) means 92% (or 80%) employment) So we can't muster the necessary numbers to be effective. Perhaps in time.

Why do you not see MY points? are you too angry? Or is there another reason.?

Peace.

[Removed]

[-] 1 points by VQkag2 (16478) 2 years ago

Maybe they have betrayed conservative principles. But conservative principle are to cut regs and cut taxes for the wealthy so since that is the problem I'm not sure what you mean.

In any event when the conservative laws are passed it always overwhelmingly repubs and some dems voting.

When progressive laws are passed it is overwhelmingly dems and a coule of repubs.

And Ron Paul may have some good ideas (not really sure but I have seen him speak out against repubs) But his racist comments from his newsletter is a little too much for me to ignore. Sorry. I can't pretend that ain't the truth. Sorry.

more progressives!! fewer conservatives.!! It's our only hope.

Peace!

[-] -1 points by john23 (-272) 2 years ago

Yeah...i challenge you to watch every snippet of video...every little thing he's ever said...and find me a racist comment...ever. The man doesn't have a racist bone in his body. The newsletters you're referring to weren't written by him...and he didn't read them before they went out. When asked if one could view that as negligent that he didn't read them his response was honest....."yes, i guess it could be viewed as negligent"...and then went on to explain his life at the time and why he was so busy. He's openly said he didn't write them...doesn't agree with what was written and doesn't want anything to do with them. Here is a video that helps you understand this (2 minutes)...you really need to watch this if racism is what turns you off of him:

http://www.youtube.com/watch?v=8Rv0Z5SNrF4&feature=player_embedded

You can also watch him speak out for racial minority rights decades ago....when it was very unpopular for repubs to be doing that...look it up on youtube.

Regulations haven't done anything to help your cause....there were way less regulations from 1930-1971 than now..and the middle and lower class increased in wealth..a lot. What i don't understand about you guys is that you will say "business has taken all of their jobs overseas and screwed the american people"....i mean, why do you think they're taking their business overseas? Because of taxes and because of regulations....it seems pretty simple to me. A business will go where they can make the most profits....it's pretty simple stuff. That's why texas is teaming with business....because the tax rates. You can't have your cake and eat it too.

[-] 1 points by VQkag2 (16478) 2 years ago

Repubs proudly trumpet the conservative policies that the 1% plutocrats crave. There is always some Dems who cave in and betray their progressive principles to vote for these conservative laws. Dems involvement is worse.

The warnings you listed does not change the fact it is conservative policies that have created our problems. The failure of Dems you point out is only meaningful in that the dems failure is that they betrayed their progressive roots to vote for the plutocrats conservative laws.

More progressives (Kucinich, Sanders,) less conservatives!! We need progressive policies to counter/repeal plutocrats conservative laws.

Peace

[-] 0 points by john23 (-272) 2 years ago

Yeah and i would say the same thing about repubs....they've betrayed their conservative roots....there are honest ones, such as ron paul....who are squashed by money. How are they squashed? Through corporate involvement in government (money).

[-] 1 points by shadz66 (19985) 2 years ago

As you say "It is amazing how simple it is....yet nobody understands it" because as Galbraith said "complexity is used to disguise truth or to evade truth, not to reveal it.".

Sometimes one needs to "cut The Gordian Knot" and ask the most basic questions to get to the heart of things, like 'what is money ?' ; 'how is it created ?' ; 'who issues it ?' ; 'how do they do it ?' .

For further insights in keeping with the theme of your thread :

e tenebris, lux ...

[-] 1 points by MattLHolck (16833) from San Diego, CA 2 years ago

reading was made exclusionary by the church in the dark ages

[-] 0 points by john23 (-272) 2 years ago

You can read through any economics textbook to backup what i'm saying...you can dig through a ton of them for free online:

https://www.google.com/search?q=Fractional+reserve+banking&btnG=Search+Books&tbm=bks&tbo=1

For yet another book specifcally pointing you to the information flip straight to page 549...this textbook was written by "Nicholas Gregory "Greg" Mankiw is an American macroeconomist and Professor of Economics at Harvard University":

http://books.google.com/books?id=UT64rsFG1b0C&pg=PA549&dq=Fractional+reserve+banking&hl=en&sa=X&ei=VZK_T8GPGKX_sQKS-83jCQ&ved=0CF8Q6AEwBw#v=onepage&q=Fractional%20reserve%20banking&f=false

Another source posted below:

http://ecedweb.unomaha.edu/ve/library/hbcm.pdf

For even more assurance that money is created through fractional reserves refer to these free PDF books provided by the mises institute that are written by economists: Here is one that goes into it in detail that you can read online (go to page 200 and start at "An Isolated Banks Capacity for Credit Expansion and Deposit Creation":

http://mises.org/document/2745/Money-Bank-Credit-and-Economic-Cycles

Another that goes into this in detail to buy that is a quick read is:

https://mises.org/store/Product2.aspx?ProductId=528

Or if you're a wikipedia type person read their discussion of fractional reserves:

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CFUQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FFractional_reserve_banking&ei=OLu_T7uTLsHi2QXg3JHrBg&usg=AFQjCNHR0wq5hh6NzbGvJk2GtdVFbHQQpA&sig2=mcKy2XKtn_4se2hWS-gHbA

They all backup the fact that money is created through fractional reserves.....even the Fed's own monetary measuring tools measure money creation through fractional reserves....that's why M0 is less than M1 which is less than M2 which is less than M3.

[-] 3 points by shadz66 (19985) 2 years ago

Further to your 'forum-post' and comments and with reference to "The Theory of Money" - please do try to watch the new, insightful and excellent Video Documentary from a UK perspective :

When money drives almost all activity on the planet, it's essential that we understand it. Yet simple questions often get overlooked - questions like : Where does money come from ? Who creates it ? Who decides how it gets used ? And what does that mean for the millions of ordinary people who suffer when money and finance breaks down ?

People should have an opportunity to bank with ethical (& perhaps publicly owned) banks. The best ethical practices should be present in the 'market place' and should be promoted, incentivised and rewarded 'in the market place' so we the people - The 99% - can make informed choices and perhaps only 'Publicly Owned Banks' can do this - which is exactly why The Infernal Banksters will fight this idea tooth and nail !!!

Further, some other points on the matter of 'Publicly Owned Banks' :

1) True Democratic Accountability and Oversight of such behaviour as led to 'The 2008 Financial Crisis' ;

2) Prevention of cultures of short-termism ; 'moral-hazard' ; 'perverse incentives' and 'regulatory capture' ;

3) Profits to be ploughed back into "Society" rather than to 'private shareholders' (Foreign or otherwise) ;

4) Driving out 'bad banking practice rewarding greed' & favour and instil 'ethical' practices and behaviour ;

5) Genuine rewarding of savers - NOT fleecing them and driving them towards 'sharks' ;

6) A far more fair, rational, longer-term & more socially responsible outlook for lending ;

7) The urgent reintroduction of 'Glass Steagal' and a Financial Transaction -'Tobin Tax' ;

8) Reigning in dubious practices ("Innovative Financial Products" - CDOs, CDS's, 'Mortgage Backed Securities', et al and outright fraudulent behaviour - Bernie Madoff / Jon Corzine / MF Global, et al) ;

9) Re-instilling Public Confidence by Accepting / Realising that Banking & Financial Services can NOT just be left to 'Selfish Short-Term Profit Motives' & Banking to be seen as a 'Strategic Public Utility' ;

10) Have you ever heard of 'The State Owned', "Bank Of North Dakota"? IF NOT, why not do you think ? ( http://en.wikipedia.org/wiki/Bank_of_North_Dakota and http://banknd.nd.gov/ ) .

There is a degree of overlap in my points and almost guaranteed that one could argue the toss, so from a mainly US perspective - I also append something more substantial to read, reflect and ruminate upon :

e tenebris, lux ...

[-] 2 points by MattLHolck (16833) from San Diego, CA 2 years ago

banks collect money through interest and charges

[-] 3 points by shadz66 (19985) 2 years ago

Consider that banks create "money" out of thin air by simple 'fiat' via 'double-entry bookkeeping' & due to the extra added "interest", that there isn't enough money in the world to pay all the usurious debt !!!

ad iudicium ...

[-] 2 points by DKAtoday (28495) from Coon Rapids, MN 2 years ago

It is illegal and it is no doubt profligate - where are the enforcers of electronic smoke and mirrors?

[-] 2 points by shadz66 (19985) 2 years ago

To answer directly ; incapable, incompetent, co-opted, asleep on the job &/or complicit in the crimes !!!

fiat justitia ruat caelum ...

[-] 1 points by DKAtoday (28495) from Coon Rapids, MN 2 years ago

Good answer.

[-] 1 points by hchc (3297) from Tampa, FL 2 years ago

What would you guess as the percentage of money that exists to pay off the debt?

Im guessing .01%, about the same as the percentage of the people that created it :)

[-] 1 points by shadz66 (19985) 2 years ago

Your question really hinges around what we understand the word "exists" to mean in this context and I'm really not trying to be unnecessarily obtuse here.

Consider that only a tiny fraction of 'money' exists as 'physical currency notes and coins' as most now merely "virtually exists" as electronic binary code in massive interlinked computer data systems under the aegis of 'double entry bookkeeping'. The true level of 'The Debt' - personal, business, corporate and sovereign, is truly vast, beyond comprehension almost unquantifiable without real, true and honest full disclosure & proper accounting standards being transparently and universally applied across the board.

Thus, though from a predominantly UK perspective, please watch and consider the following film :

fiat lux ...

[-] 1 points by DKAtoday (28495) from Coon Rapids, MN 2 years ago

Damn-it anyhow - then I declare by reason of electronic smoke and mirrors - that I and every person in the world who is in need is - Independently wealthy - I expect all banking records to be updated immediately.

[-] 0 points by john23 (-272) 2 years ago

Actually no....you're wrong...total money supply does increase ....this is absolutely true. Bank A's total deposits does not get reduced by 900$...this is why it's referred to as fractional reserves...only a fraction of the reserves are kept at the bank. Watch this video...this guy works with bill gates to educate people across the world for free online...so he's not some random guy:

http://www.khanacademy.org/finance-economics/banking-and-money/v/banking-3--fractional-reserve-banking

Banks only keep a portion of cash on reserve and pyramid debt off of that cash. In the money supply you have to incorporate total demand deposits...because this is what people could withdrawal on demand and use in the economy...which is what determines inflation and how much money can be used in an economy.

Actually there is a whole video series on "money and banking"....check it out.

http://www.khanacademy.org/

[-] 2 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

I worked for the Fed and as an investment banker, so I am as informed about banking as anyone. If khan claimed what you did, he is wrong.

Fractional reserve banking means you have to keep a fraction of your deposits on reserve. In the US it is 10%.

So if a bank gets a $1000 deposit, lends out $900 and cashes a $300 check, it will have $700 on deposit and $900 in loans outstanding. That bank now no longer has 10% in reserve. So it must now borrow $300 that night from other banks with a surplus of reserves at the fed funds rate.

[-] 1 points by niphtrique (323) from Sneek, FR 2 years ago

Well, well, the FED redefines monetary theory. Creating money isn't really creating money. But it is according to regular monetary theory.

Money is defined as to be spent directly. If it is in the current account then can be spent directly. If everybody wanted all the money at the same time, it would not be there.

So it is not real money. But money is not real anyway.

[-] 1 points by john23 (-272) 2 years ago

There are entire books devoted to this very subject by renowned economists. Here is one that goes into it in detail that you can read online (go to page 200 and start at "An Isolated Banks Capacity for Credit Expansion and Deposit Creation":

http://mises.org/document/2745/Money-Bank-Credit-and-Economic-Cycles

Another that goes into this in detail is:

https://mises.org/store/Product2.aspx?ProductId=528

I'm not surprised that an investment banker wouldn't be aware of this...most aren't. If you're implying that money isn't printed (physical money) you're correct....physical money isn't created by fractional reserves. Digital money is created however.

Another area you can dig into to prove the point is the great depression....that while reserves didn't increase by hardly anything (gold standard) total demand deposits and time deposits increased enormously in the early 20's...in essence increasing M2 and causing credit creation/expansion.

[-] 3 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

All the links in the world are not going to change the simple mathematical fact that a bank needs to be able to lend out more than 100% of its deposits in order to increase the money supply. Banks in the US can only lend out 90%. So it is physically impossible.

There are no renowned economists making your claim. And that mises site certainly is not renowned within the academic economics community. Austrian economics is just libertarian propaganda. Its sole purpose is to come up with any nonsense it can to justify getting rid of government. It is not legitimate scholarly work.

[-] 0 points by john23 (-272) 2 years ago

This is for the benefit of anyone reading this and wanting a quick answer on who's right....just go read these few pages from a Harvard economics professor who writes textbooks on macroeconomics:

http://books.google.com/books?id=UT64rsFG1b0C&pg=PA549&dq=Fractional+reserve+banking&hl=en&sa=X&ei=VZK_T8GPGKX_sQKS-83jCQ&ved=0CF8Q6AEwBw#v=onepage&q=Fractional%20reserve%20banking&f=false

Hopefully anybody reading these posts doesn't throw this aside as too complicated to understand...it really isn't...and yes, the website at the top of the page is correct.

[-] 0 points by john23 (-272) 2 years ago

I'm not sure where you're getting your data that banks can only lend to 90% of reserves:

"As of 2006 the required reserve ratio in the United States was 10% on transaction deposits and zero on time deposits and all other deposits."

For the Fed's own website on reserve requirements:

http://www.federalreserve.gov/monetarypolicy/reservereq.htm#table1

And i think you should dig into some links...because you're assertions aren't accurate. Its hard to argue with someone that won't look at facts and information. What Fed branch did you work at?

China even raises its reserve ratio on fractional reserves to rain in inflation....as it squeezes credit and causes deflation.....fractional reserves are very real and no doubt happening in this country today. Our own Fed has this option to rain in inflation....raise the reserve requirement.

The only way you're argument makes any sense is if you consider M0 the true money supply....which isn't an accurate representation. If you look at M2 during lowered reserve requirements...it absolutely increases the money supply.

[-] 2 points by geo (2638) from Concord, NC 2 years ago

Its really simple, when banks loan out money (credit), they create a debt on the other side of the ledger. Simple accounting. It's a zero sum game with banks making money through interests and fees.

[-] 0 points by john23 (-272) 2 years ago

From your post: "It's all illusion. No real cash money gets created. It's debt creation. The ultimate proof of this is when there is a run on the banks.... they fold like a house of cards because combined they do not have the physical cash on hand to meet the cash withdrawl requirements. They then need an injection of cash from the government to cover debt obligations. It's this exact line of thinking that keeps putting the financial world at risk for systemic failure."

Yeah you're right....it's a pyramid of debt...but it creates inflationary action in the economy that screws over the middle and lower class....my whole point is that fractional reserves are inflationary...there is a creation of money (and debt) pyramided on top of each other. One could argue every dollar in circulation is actually debt that must be repaid at some point in the future.

[-] 3 points by geo (2638) from Concord, NC 2 years ago

I was beginning to believe that you were trying to sell me on the benefits of fractional banking.... sorry about that. I see the debt pyramid as more of the threat than the inflationary aspect of the scheme.

[-] 0 points by john23 (-272) 2 years ago

Yeah, but you're not factoring in the repetition. So say you deposit 1000 in bank A....bank A now has 1000 in liabilities (it owes you 1,000)...the bank puts some as reserves (say 10% which is the current reserve ratio) and lends the rest out (900$) to someone else. So on assets it has 100$ on reserve and 900$ loaned out. This person that receives the 900$ deposits it into bank B. Bank B now has liabilities of $900 (it owes this person 900$). Bank B keeps 10% as reserves (90$) and lends the remaining $810 to someone else. This has been one iteration of fractional reserves...now lets calculate the money supply by total demand deposits (deposits redemable on demand)...Bank A has $1,000 in liabilities and Bank B has $900 in liabilities (the demand deposits which can be asked for at any time by the people who deposited their money). So the current money supply operates as if $1900 is in circulation (if each person spends the entirety of their money they spend $1900....so essentially 1000 has turned into 1900 with this one iteration...this process keeps repeating however and turns into a much more dramatic increase). This is how fractional reserves create money.

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

Explain how you think a bank that has $1000 on deposit, a 10% reserve and a $900 loan is in compliance when the person who deposited that $1000 writes a check for $300?

Not only is it no longer meeting its reserve requirements, but the bank actually has no money to cash that check. It doesn't have the legal authority to just cash the check anyway. The Fed which handles transactions would never allow it. So the bank must borrow that $300 from another bank that night that has a surplus reserve. They are borrowing $300 that already exists in the money supply. No new money was created.

You can't say that banks must have a 10% reserve and then just ignore the fact that they can only lend out 90% of their deposits when you go through your fractional reserve example.

[-] 0 points by john23 (-272) 2 years ago

you said:

""Imagine being told your life savings is about 10% of what it should be because it's only backed by 10% of hard money (this is your argument)" I am not saying that at all. When you deposit $1000, you have $1000. I am not saying you have only $100. What I am saying is that the banks do not have the ability to turn that $1000 into $10,000 of spendable money by just creating $9000 of new money out of thin air. If any of that $10k gets spent, the banks would no longer be meeting their reserve requirements. They would then be forced to borrow money at market rates to make good on that money. They cannot just print it!!"

My answer:

Yes they do have that ability. They are not creating paper money, it is digital money. This is why M2 is greater than M1 which is greater than M0...M2 factors these forms of fractional reserves. It doesn't matter...the fractional reserves make people act like there is 10,000 i the economy (goods will increase in price to match the 1,000 increase to 10,000). People believe they ahve 10,000 to spend in the economy and because of that more transactions will occur and prices will go up....its like saying how much would you spend if you had $1 in your bank account....then how much would you spend if you had 1,000,000 in the bank account. Obviously there will be more money circulating with the $1,000,000 for different items resulting in inflation...it doesn't matter if it's digital money. They would (the treasury), however, have to print more money if everyone went to the bank and withdrew all their money at exactly the same time...the banks wouldn't print it...the gov would because accounts are backed by the FDIC to avoid bank runs.

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

"Yes they do have that ability. They are not creating paper money, it is digital money"

That is just not true. Banks do not have the ability to create their own digital money.

I can assure you that if you started your own bank and you just started giving yourself digital money that your bank just created out of thin air, you would go to jail.

[-] -1 points by john23 (-272) 2 years ago

Lol, yes they absolutely do..and it's done legally...they don't give it to themselves, they loan it out....this textbook was written by Nicholas Gregory..... an American macroeconomist and Professor of Economics at Harvard University...should take you straight to page 549...if not go to that page and if you don't feel like reading all of it just find the italicized wording about halfway down the page:

http://books.google.com/books?id=UT64rsFG1b0C&pg=PA549&dq=Fractional+reserve+banking&hl=en&sa=X&ei=VZK_T8GPGKX_sQKS-83jCQ&ved=0CF8Q6AEwBw#v=onepage&q=Fractional%20reserve%20banking&f=false

From the above book provided in the link: "Thus, in a system of fractional-reserve banking, banks create money"

This very topic was covered in a hearing held today in congress..listen in on economics professors and bank experts speaking about it:

http://www.youtube.com/watch?v=jVm3Yzjq8zE&feature=player_embedded

For even more assurance that money is created through fractional reserves refer to these free PDF books provided by the mises institute that are written by economists: Here is one that goes into it in detail that you can read online (go to page 200 and start at "An Isolated Banks Capacity for Credit Expansion and Deposit Creation":

http://mises.org/document/2745/Money-Bank-Credit-and-Economic-Cycles

Another that goes into this in detail to buy that is a quick read is:

https://mises.org/store/Product2.aspx?ProductId=528

Or wikipedia: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CFUQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FFractional_reserve_banking&ei=OLu_T7uTLsHi2QXg3JHrBg&usg=AFQjCNHR0wq5hh6NzbGvJk2GtdVFbHQQpA&sig2=mcKy2XKtn_4se2hWS-gHbA

[-] 2 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

You are not understanding what that textbook is saying. The textbook does not say the bank can just create digital money out of thin air and pay the bank owners (or anyone else).

The textbook does not say a bank can just create whatever money it needs in order to make good on its obligations. If that were true, everyone would be a bank owner, everyone would be a trillionaire and the resulting inflation would put Zimbabwe to shame.

What that textbook is saying is that if you deposit $1000 at a bank and that bank lends $900 of it to someone else who deposits it at another bank, one measure of the money supply would show an increase of $900.

But only $1000 of that $1900 is spendable.

If you withdraw any of your $1000, the bank DOES NOT have the ability to just digitally create the money you want to withdraw and nowhere in that textbook does it say the bank has that ability!!

The bank only has $100 of your $1,000 on deposit. And the bank needs all of that money to remain on reserve in order to meet its reserve requirement. So if you wanted to withdraw any of your money, the bank would not have any money to give you.

If you wanted to withdraw $50, the bank does not have the power to just create $50 in digital money. It would be required by law to borrow that $50 from another bank at market interest rates that very night.

So it has to borrow that money from another bank. It cannot just create the money out of thin air.

[-] 1 points by john23 (-272) 2 years ago

You said:

"The point that I was refuting is your claim that a bank can create digital money to meet its obligations. This I hopefully demonstrated to you is not possible. A bank can only honor payments equal to its deposits. Just because one measure of money supply that economists use that does not subtract loans from deposits shows an increase does not mean there is more money available to be spent. If a bank runs short on money because it loaned out too much, it borrows the extra money it needs from another bank that has a surplus of money. So the total amount of spendable money remains the same. The supply of spendable money that banks have certainly does expand as the economy grows. But that is not done by banks. It is done by the federal reserve buying treasuries in the secondary market. The money it spends buying treasuries gets deposited in banks which increases their reserves. This is called the Fed's open market operations and is the Fed's primary tool in managing the money supply. Also, prices are not affected by the amount of money people think they have. It is affected by the money that actually gets spent. Also, loans do not increase total spending. When you borrow $900, you do not get $900 in additional spending. That $900 has to get paid back. So that means you are spending $900 less in the future."

My answer:

I never said a bank could create digital money to meet its obligations....but it does create digital money nonetheless. You're right about the fed increasing the money supply with open market operations, but after that open market operation has occurred the banks then take that money and pyramid it to further expand the supply of money. Like the above example...if the fed provides $1,000 via open market operations (with a %10 reserve requirement) the banks can then pyramid this money to create $10,000 in the economy.

It absolutely does cause an increase in credit expansion and fuel increases in spending which leads to inflation. There are entire economic books about this, specifically during the roaring twenties when the reserve requirements were lowered multiple times causing greatly increased economic activity.

You said that because it is a loan it has to be paid back in the future. What difference does that make? When the loan is paid back what happens once again? The bank now has excess reserves, so it once again loans out that money so it can be fully vested once more and the money supply goes right back to its inflated state.

[-] 1 points by DKAtoday (28495) from Coon Rapids, MN 2 years ago

Legally. This is the age of smoke and mirrors - white collar crime.


[-] 0 points by DemandTheGoodLifeDotCom (2371) 0 minutes ago

The point that I was refuting is your claim that a bank can create digital money to meet its obligations. This I hopefully demonstrated to you is not possible. A bank can only honor payments equal to its deposits.

[-] 1 points by john23 (-272) 2 years ago

I never said the bank could create money whenever it chooses and to an unlimited extent. It has a reserve ratio....and can lend out to that reserve ratio. When the bank loans out $900 that goes to another person...and what do they do? They put it in another bank where it happens again. With just this one iteration people in the economy think they own $1900.

Check out this link real quick, it's a quick overview of how the money supply actually increases every time they do this (up to their reserve requirement):

http://hmscoop.com/FractionalReserves.html

In the example above in the link you could say that the treasury printed physically $1000 and gave it to person A. With a reserve requirement of 10%, that actually turns into $10,000 after it is introduced into the economy...the banks have created $9000 dollars...or expanded the money supply by $9000 to put it another way.

You're wrong in saying that only $1,000 dollars is spendable in your example you posted. People can absolutely spend that money ($1900)....which would create a run on the bank as they dont have all of it on hand....and what comes in now to protect the banking system if this were to happen? The federal government via the FDIC...which guarantees deposits....this never happens though because statistically everyone in the society doesn't ask for all their money at once (especially all of their money in physical form...federal reserve notes). Fractional reserves can only increase the supply of money to a certain extent if you figure it out mathematically...known as the multiplier.

The important point is that people believe they have this much money in the bank ($1900) and the economy portrays this via rising prices because of the increase in available money to spend by the population.

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

The point that I was refuting is your claim that a bank can create digital money to meet its obligations. This I hopefully demonstrated to you is not possible. A bank can only honor payments equal to its deposits.

Just because one measure of money supply that economists use that does not subtract loans from deposits shows an increase does not mean there is more money available to be spent.

If a bank runs short on money because it loaned out too much, it borrows the extra money it needs from another bank that has a surplus of money. So the total amount of spendable money remains the same.

The supply of spendable money that banks have certainly does expand as the economy grows. But that is not done by banks. It is done by the federal reserve buying treasuries in the secondary market. The money it spends buying treasuries gets deposited in banks which increases their reserves. This is called the Fed's open market operations and is the Fed's primary tool in managing the money supply.

Also, prices are not affected by the amount of money people think they have. It is affected by the money that actually gets spent.

Also, loans do not increase total spending. When you borrow $900, you do not get $900 in additional spending. That $900 has to get paid back. So that means you are spending $900 less in the future.

[-] 0 points by DKAtoday (28495) from Coon Rapids, MN 2 years ago

Where does funding for research come from?

The wealthy - the corpoRATions.

Do you think a slant in thinking might be influenced by money/funding?

Shock doctrine.

Wake-up.

[-] 0 points by john23 (-272) 2 years ago

what's shockin though? don't understand?

[Removed]

[-] 0 points by john23 (-272) 2 years ago

Say what?

[-] 1 points by DKAtoday (28495) from Coon Rapids, MN 2 years ago

Sorry - was I mumbling?

Shock doctrine.

Wake-up.

[-] -1 points by john23 (-272) 2 years ago

My example is a simplified version of what really goes on because it only deals with one individual (although the details of it are accurate)....the whole concept of fractional reserves works with a population and it assumes everyone will not withdrawal at the same point in time. So with a population the bank should have hundreds of thousands of dollars on reserve (reserves from thousands of people)...and statistically all these people will not run to the bank and withdrawal all their money at once. So the guy in your example withdrawing 300$ won't have a problem. This has happened in history though where reserves weren't there... This is what causes bank panics....because money isn't physically at the bank...its all been loaned out (hence the FDIC safety net). You're right in saying that if a bank is low on reserves it can borrow money from another bank overnight....or it can also tighten credit on future loans...but that doesn't negate the fact that there has been an increase in the money supply through fractional reserves.

Here is how i can prove my point to you. Take a look at the federal reserves current money supply data. M0 is less than M1 which is less than M2....M2 factors in fractional reserve banking through demand deposits and a few other things...the important thing is that M2 factors in what people believe they could withdrawal from the bank....it is greater than central bank notes (M0)....this is an increase in the money supply from where the central bank initially created money..there is not physically enough money in circulation for everyone to withdrawal their entire savings to cash...so where does the extra "digital" money come from....fractional reserves...which increases the money supply in digital form. Wikipedia:

"The different forms of money in government money supply statistics arise from the practice of fractional-reserve banking. Whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of money is created. This new type of money is what makes up the non-M0 components in the M1-M3 statistics. In short, there are two types of money in a fractional-reserve banking system[16][17]:"

You said: "You can't say that banks must have a 10% reserve and then just ignore the fact that they can only lend out 90% of their deposits when you go through your fractional reserve example."

Thats the same thing looking at it from different angles...the bank must have 10% of reserves in hand....or in other words it could lend out 90% of what someone deposits to them...same thing.

[-] 1 points by geo (2638) from Concord, NC 2 years ago

You forget to keep multiplying the debt each time credit is lent out.

[-] 0 points by john23 (-272) 2 years ago

It doesn't matter...the debt is increased along with the money supply..but that's regardless of the fact that there is an increase in the money supply. At the start of the problem there was a $1000 that could be spent at a single instance in the economy...the total money supply was $1000...after 1 iteration of fractional reserve banking there is now $1900 that could be spent at any one point in time....the money supply has just added $900

[-] 2 points by geo (2638) from Concord, NC 2 years ago

At the start of the problem there was a $1000 that could be spent at a single instance in the economy...the total money supply was $1000...after 1 iteration of fractional reserve banking there is now $1900 that could be spent at any one point in time....the money supply has just added $900

That money, $900, isn't just spent and put into circulation... its a DEBT that has to be paid back, it gets removed from circulation upon payback. It's not given for free to be used as say a bonus in someones pay check.

[-] 2 points by webb5 (36) 2 years ago

In economics, the majority are always wrong. [Less protectively, contemporary "economists" lie because the whole, purposed lie of usury and unearned taking is unsustainable in any practical implementation, and because therefore, no intelligent public would ever assent to the dispossession and usurpation which the lies are designed to impose upon them. Thus...] The study of "money," above all other fields, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. John Kenneth Galbraith

[-] 0 points by john23 (-272) 2 years ago

What is that debt though ($900)? Its a deposit by somebody....so how is that debt paid back...the bank cashes money for the person when they want their money back to withdrawal from the bank...what does this person do with their money...they spend it...where does that money wind up again? Right back into another bank when whoever she gives her money to for services or goods she needs deposits it into the bank..you're looking at it instantaneously and confusing yourself...it's dynamic in the real world.

[-] 3 points by geo (2638) from Concord, NC 2 years ago

You are confusing your debits and credits (+/-'s), you count the debt as a deposit and call it a plus when a debt is a minus in the ledger in any type of accounting.

[-] 0 points by john23 (-272) 2 years ago

No i'm not.

It's a liability to the banks....what are their assets then....10% of that deposit as reserves and 90% loans to someone else. So assets=$100 (from reserves they are required to have) + $900 loaned out to another person or institution....their liabilities are $1000 that someone has deposited in the bank that the bank has to repay at a later date when the consumer wishes to withdrawal his/her money. I'll post what i did for DemandTheGoodLifeDotCom above:

You can read through any economics textbook to backup what i'm saying...you can dig through a ton of them for free online:

https://www.google.com/search?q=Fractional+reserve+banking&btnG=Search+Books&tbm=bks&tbo=1

For yet another book specifcally pointing you to the information flip straight to page 549...this textbook was written by "Nicholas Gregory "Greg" Mankiw is an American macroeconomist and Professor of Economics at Harvard University":

http://books.google.com/books?id=UT64rsFG1b0C&pg=PA549&dq=Fractional+reserve+banking&hl=en&sa=X&ei=VZK_T8GPGKX_sQKS-83jCQ&ved=0CF8Q6AEwBw#v=onepage&q=Fractional%20reserve%20banking&f=false

For even more assurance that money is created through fractional reserves refer to these free PDF books provided by the mises institute that are written by economists: Here is one that goes into it in detail that you can read online (go to page 200 and start at "An Isolated Banks Capacity for Credit Expansion and Deposit Creation":

http://mises.org/document/2745/Money-Bank-Credit-and-Economic-Cycles

Another that goes into this in detail to buy that is a quick read is:

https://mises.org/store/Product2.aspx?ProductId=528

Or if you're a wikipedia type person read their discussion of fractional reserves:

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CFUQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FFractional_reserve_banking&ei=OLu_T7uTLsHi2QXg3JHrBg&usg=AFQjCNHR0wq5hh6NzbGvJk2GtdVFbHQQpA&sig2=mcKy2XKtn_4se2hWS-gHbA

They all backup the fact that money is created through fractional reserves.....even the Fed's own monetary measuring tools measure money creation through fractional reserves....that's why M0 is less than M1 which is less than M2 which is less than M3.

[-] 3 points by geo (2638) from Concord, NC 2 years ago

It's all illusion. No real cash money gets created. It's debt creation. The ultimate proof of this is when there is a run on the banks.... they fold like a house of cards because combined they do not have the physical cash on hand to meet the cash withdrawl requirements. They then need an injection of cash from the government to cover debt obligations.

It's this exact line of thinking that keeps putting the financial world at risk for systemic failure.

[-] 2 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

You are missing some basic math.

In order to spend $1900, Bank A needs to be able to lend out $900 and allow the original person who deposited the $1000 to spend his money.

So Bank A would have zero in deposits and $900 in loans. Explain how you think Bank A under that scenario has 10% of its deposits on reserve and would not be shut down by the Fed.

[-] 2 points by webb5 (36) 2 years ago

You are fooling no one with this crap. John has explained it well and you are ignoring his explanation with foolish comments.

Most people believe that every single dollar the banks lend comes from money deposited in their bank as savings. This is most definitely not the case. The banks use a fraudulent process called Fractional Reserve Banking to create this money. Governments throughout the world make it legal by allowing them to operate this way. See link below.

http://en.wikipedia.org/wiki/Fractional-reserve_banking

Central Banks apart from creating new money as debt to governments, or very rarely as credit, control the ratio of deposits the Commercial banks can lend. This ratio is called fractional reserve banking. This practice allows banks to lend very large sums of money they do not have. Fractional reserve banking allows banks to keep only a fraction of deposits in reserve and lend out the remainder. Over Ninety percent of new money is created this way.

Excess reserves Definition: The amount of bank reserves over and above those that the Federal Reserve System requires a bank to keep. Excess reserves are what banks use to make loans, this is where the majority of all new money is created. If a bank has more excess reserves, then it can use them to create new money in the form of new loans.

For example if the reserve was set to twenty percent, $800 of a $1,000 deposit could be used to lend out to borrowers. This $800 (excess reserve) lent out will then become a deposit in another bank. This other bank that receives this can lend out $640 of this $800 deposit as 20% is reserved.

This process will continue untill it reaches its maximum. The maximum amount of total deposits that can be created this way at 20 percent is $5,000 and the maximum increase in the money supply is $4,000. At this rate the banks have fraudulently created $4,000 out of thin air using a $1,000 deposit.

The graph below shows how much more the banks create from excess reserves when the fractional reserve rates are lower

Deposits Fractional Reserve Rate Banks Create
$1,000 20% $4,000
$1,000 10% $9,000
$1,000 5% $19,000
$1,000 2% $49,000
$1,000 1% $99,000
$1,000 0% No limit

Over the years the ratio for fractional reserve banking has dropped, in most countries 3% or less is now the norm. This is a very deceitful and dangerous thing to do, as a run on the banks is very possible if large numbers of deposits are removed from banks. Although Central Banks can cover a certain number of withdrawals on behalf of some banks, it does however have a limit. A domino effect is a reality and can occur as banks do not have the money required because of very low fractional reserves. Banks will begin shutting down every where when this limit is passed. It should be called fictional reserve banking, it should be banned and replaced with Social Credit.

[-] 2 points by SteveKJR1 (8) 2 years ago

I think Wikipedia has you confused - here is the definition from answers.com

A banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties. Most countries operate under this type of system

So based upon the above statement, bank A receives a deposit of $1000 from individual A who has an account with bank A. This is entered onto the balance sheet as a cash asset. By law, Bank A has to keep 10% or $100 from the $1000 on hand for withdrawls by individuals who do business with Bank A.

Bank A can now use the remaining $900 to expand the economy by making this money available as a loan to qualified individuals.

Individual B borrows $900 from Bank A, Bank A loans $900 to individual B and now shows this loan on its balance sheet as a loan asset instead of a cash asset

Individual B then takes the $900 and deposits it into Bank B. Bank B receives the amount of $900 from individual B and his transaction is entered onto the balance sheet as a cash asset.

By law, Bank B has to keep 10% or $90 from the $900 on hand for withdrawls by individuals who do business with Bank B.

Bank B can now use the remaining $810 to expand the economy by making this money available as a loan to qualified individuals

Based upon the above sceneario, I don't see how $1,000 can be made to increase by bank A, except by the interest that is collected on the $900 loan made to individual B.

So, here you have in one instance interest paid to Individual A by Bank A on the $1000 deposited. Then you have individual B borrowing $900 from Bank A and is now paying interest to Bank A on the $900 loan.

Then you have individual B depositing the $900 in Bank B and collecting interest on it. And lets not forget that Bank B now has $810 available to lend out to qualified individuals.

That seem pretty simple to understand.

Bank A receives $1000 from indiviual A and pays him interest, Individual B borrows $900 from bank A and has to pay Bank A interest on the money borrowed and lastly Bank B pays individual B for the $900 that he deposited with bank B. In addition to that Bank B now has $810.00 to loan out.

So tell me where is the massive amounts of new money created?

[-] 2 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

This is really not that difficult to understand.

When Paul deposits $1000 at the bank and the bank loans $900 of it to Mary, there is still only $1000 in total money. There is $100 in the bank and $900 in Mary's pocket.

If Paul writes a check for $500, THE BANK WOULD BE UNABLE TO CASH THAT CHECK BECAUSE IT ONLY HAS $100.

The bank does not have the ability to just create money out of thin air to cover that $500 check. That is against the law.

And since the law requires the bank to have a 10% reserve requirement, the bank would not actually be able to cash any check that Paul wrote for any amount.

Even though the bank still has $100 of Paul's money on deposit, it cannot touch that money. That money must remain in its vault to meet its reserve requirement. So if Paul wrote a check for $5, the bank would not be able to cash it. The bank would be forced that night to borrow that $5 from another bank that had excess reserves.

[-] 1 points by webb5 (36) 2 years ago

I repeat, You are fooling no one with this crap. John has explained it well and you are ignoring both explanations with foolish comments. Of course banks create money out of thin air. This fraudulent practice is made legal worldwide by our own governments. There is plenty of information out there on this crime.

The financial crisis around the world has been caused by greed and stupidity of the banking organisations. Why should the taxpayers bail out you guys when you stuff up. Its time you guys were put out of business and replaced with People Banks using Social Credit. See link below

http://www.bleedingindebt.com/

[-] 0 points by john23 (-272) 2 years ago

Yes!!!! The people can spend the $1900 becausee the FDIC would make up the difference the banks need in physical cash if everyone instantaneously asked for their money at the same time (which never happens in a real economy with confidence in the banking system!!!!!!). There is no way the FDIC would allow the population to lose confidence in the banking system...that would be complete catastrophe for the whole system.

I mean your argument is basically this. Even if the population thinks they own $1900 (which they do based on what deposits they have in the bank in our fake economy with 1 iteration of fractional reserves)...they really don't because there is only $1000 in hard money. Imagine being told your life savings is about 10% of what it should be because it's only backed by 10% of hard money (this is your argument)...that's ridiculous...digital money is as good as hard money in our economy. Your argument is becoming more and more ridiculous. Read some economics textbooks...this stuff is actually in there.

Here you go...dig through them all:

https://www.google.com/search?q=Fractional+reserve+banking&btnG=Search+Books&tbm=bks&tbo=1

For yet another book specifcally pointing you to the information you refuse to look at flip straight to page 549...this book was written by "Nicholas Gregory "Greg" Mankiw is an American macroeconomist and Professor of Economics at Harvard University"...i hope it is up to your standards on reliable sources... Harvard professor writing economics textbooks:

http://books.google.com/books?id=UT64rsFG1b0C&pg=PA549&dq=Fractional+reserve+banking&hl=en&sa=X&ei=VZK_T8GPGKX_sQKS-83jCQ&ved=0CF8Q6AEwBw#v=onepage&q=Fractional%20reserve%20banking&f=false

[-] 2 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

"Imagine being told your life savings is about 10% of what it should be because it's only backed by 10% of hard money (this is your argument)"

I am not saying that at all. When you deposit $1000, you have $1000. I am not saying you have only $100.

What I am saying is that the banks do not have the ability to turn that $1000 into $10,000 of spendable money by just creating $9000 of new money out of thin air.

If any of that $10k gets spent, the banks would no longer be meeting their reserve requirements. They would then be forced to borrow money at market rates to make good on that money. They cannot just print it!!

[-] 1 points by niphtrique (323) from Sneek, FR 2 years ago

John, after seeing into this thread, I think you are wasting your time on this.

Theory begins with definitions and you have to agree on them.

DemandTheGoodLife has an innovative view on money :).

[-] 0 points by john23 (-272) 2 years ago

No...you're confusing yourself (this is in reference to your post below)...they can create money....its diiiggiiitalllll money....it isn't physical money....no actual money has physically been printed....it has been added into the money supply digitally.

Did you not read my post on different money supplies? M0, M1, M2 etc? M0 is what you're referring to...the physical money or cash...a federal reserve note. M2 is what people think they can withdrawal from the banks....M2 is much greater than M0....so there is more digital money than physical....the population as a whole could never withdrawal all their money at once...because the majority of it is digital (created by the banks out of thin air). If they tried to the FDIC would have to step in and make more physical money so banks could honor their depositors. M2 is greater than M0...this is fact...period....digital money has been created that people can spend at will...and who created it? The banks.

When the government physically coins 1$ (M0) and puts it into circulation....the banks (with a 10% reserve ratio) can turn that into 9$ in the market place through fractional reserves (M2)....8$ is digital money...1$ i still hard or physical money. This is why M2 is greater than M0...because money has been added....this is fact...look up M2. So what happens if everyone in this economy runs to the bank and withdrawals all their money to cash? A bank run...the banks would close down until the FDIC came to the rescue to print up the physical money that is needed to fulfill obligations (8$ in this economy).

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

You are very confused.

Can the people spend the $1900 or can they only spend $1000?

The fact is they can only spend $1000 regardless of whether it is digital money or actual physical cash.

[-] 0 points by john23 (-272) 2 years ago

You're not really saying anything wrong here from what you wrote above (except the bank creates digital money)..pretty freaking fraudulent isn't it? The one thing you're missing is that you don't understand that Mary also deposits the money in another bank and that bank does the same thing as the first. So now she think she's entitled to 900$ on demand (whenever she wants to withdrawal her money) and Paul thinks also thinks he has $1000 at the bank he can withdrawal at any one point in time. Lets do the math then....Mary has 900$ she can withdrawal and spend....and Paul has $1000 he can withdrawal and spend....how much money does this fake population of two people think they can spend if need be......$1000+$900=$1900 dollars. $900 of digitial money has just been created....if these two people ran to the bank to withdrawal all their money at exactly the same instant this would be considered a bank run and the banks wouldn't be able to honor their deposits....hence the FDIC steps in and backs the banks to create the false sense of confidence once again. Statistically this doesn't happen in an economy though because the entire population never spends all their money at once....but if they did....bank run. Banks would close their windows and stop people from being able to withdrawal because they could no longer honor depositors...FDIC time.

[-] 1 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

First you say:

"how much money does this fake population of two people think they can spend if need be......$1000+$900=$1900 dollars. $900 of digitial money has just been created"

You just claimed that the bank can create $900 in new money. But then you said:

"if these two people ran to the bank to withdrawal all their money at exactly the same instant this would be considered a bank run and the banks wouldn't be able to honor their deposits....hence the FDIC steps in"

So now you just claimed the bank could not create that $900 in new money.

You are contradicting yourself. Did the banks create the extra $900 out of thin air or did they not create the additional $900 and get shut down by the FDIC?

You are confused about how this works.

The fact is the bank CANNOT create that additional $900. It is against the law.

[-] 0 points by john23 (-272) 2 years ago

If that would happen the FDIC would have to come in and back the banks...because every account is backed by 250,000.....that doesn't happen though...because of statistics....people never withdrawal all the money at exactly the same instant (with the exception of a bank run...but that's why the FDIC is there...because it's a safety net that provides confidence that your money will always be there). Thanks for the backup webb

[-] 2 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

You are very confused.

Can the people spend the $1900 or can they only spend $1000?

The fact is they can only spend $1000 regardless of whether it is digital money or actual physical cash.

[-] 0 points by john23 (-272) 2 years ago

You said: "I would also point out that the $900 is a loan, so that is only a temporary increase to M2. That $900 will get paid back which will decrease M2 by exactly $900. So it is not inflationary. It is just spending future income today. In other words, the monetary base has not increased.."

Yeah, still definitely disagree. The 900$ is a loan...but it isn't temporary because as soon as it is repaid what happens? It's loaned out again because reserve requirements would once again allow it....you're looking at it instantaneously....it's dynamic in real life.

"What I try to point out to people is that when you deposit $1000 and loan out $900, there is not $1900 being spent. Banks cannot just create new money. If the $1900 was spent, the bank would get shut down because it doesn't have the money to make good on it."

What you still dont' realize is that the economy acts as if it has this extra money in circulation (it doesn't matter if its hard money or it's digital). Imagine $1000 dollars in an economy before fractional reserves......people think they have $1000 and so they spend accordingly....they buy a few things here and there but are fairly limited. Now fractional reserves take place....the people think they have $9000 to spend (who cares whether it's digital or hard money)...so what happens? People think there is more money to spend so what happens? More transactions to buy goods...perhaps more expensive goods and inflation occurs because of this. I mean even the Fed has the option to rain in inflation by increasing the reserve requirement. Why? Because it causes a contraction of the money supply (M2)...so what would they do to cause inflation....decrease reserve requirements and expand the money supply. What does Nicholas Gregory (Harvard economics professor who writes textbooks) conclude about fractional reserves "Thus, in a system of fractional-reserve banking, banks create money."

You said : "However. you do have to increase the amount of money people can spend because we have a growing economy. If you don't increase M0, you will have deflation."

I disagree with this as well...i think you can separate deflation into 2 areas. Deflation that stems from fractional reserves...and natural deflation that occurs because of no increase in the money supply (this is the type you're referring too). Deflation from fractional reserves causes a contraction in the money supply (actually decreases M2) and causes a credit crunch and can bring an economy to a halt. Natural price deflation i argue is actually good for the consumer (this is slow steady deflation over time). Products become cheaper....savings can purchase goods for lower costs at higher quality. Actually your own Fed wrote a paper "Deflation and Depression: Is There an Empirical Link?" studying deflation in a historical perspective and if it actually leads to depressions:

http://minneapolisfed.org/research/sr/sr331.pdf

Their conclusions "The data suggest that deflation is not closely related to depression. A broad historical look finds many more periods of deflation with reasonable growth than with depression and many more periods of depression with inflation than with deflation. Overall, the data show virtually no link between deflation and depression"

[-] 0 points by john23 (-272) 2 years ago

Lol, read my post above:

"No...you're confusing yourself (this is in reference to your post below)...they can create money....its diiiggiiitalllll money....it isn't physical money....no actual money has physically been printed....it has been added into the money supply digitally.

Did you not read my post on different money supplies? M0, M1, M2 etc? M0 is what you're referring to...the physical money or cash...a federal reserve note. M2 is what people think they can withdrawal from the banks....M2 is much greater than M0....so there is more digital money than physical....the population as a whole could never withdrawal all their money at once...because the majority of it is digital (created by the banks out of thin air). If they tried to the FDIC would have to step in and make more physical money so banks could honor their depositors. M2 is greater than M0...this is fact...period....digital money has been created that people can spend at will...and who created it? The banks.

When the government physically coins 1$ (M0) and puts it into circulation....the banks (with a 10% reserve ratio) can turn that into 9$ in the market place through fractional reserves (M2)....8$ is digital money...1$ i still hard or physical money. This is why M2 is greater than M0...because money has been added....this is fact...look up M2. So what happens if everyone in this economy runs to the bank and withdrawals all their money to cash? A bank run...the banks would close down until the FDIC came to the rescue to print up the physical money that is needed to fulfill obligations (8$ in this economy)."

So to answer your question...yes, the people can spend the $1900 becausee the FDIC would make up the difference the banks need.

I know something about you though...you never worked for the Fed.

[-] 2 points by DemandTheGoodLifeDotCom (3213) from New York, NY 2 years ago

"If they tried to the FDIC would have to step in and make more physical money so banks could honor their depositors."

Claiming that new money is created when banks fail and the FDIC makes good on the deposit is quite a different claim than saying banks have the ability to create new money out of thin air.

What I try to point out to people is that when you deposit $1000 and loan out $900, there is not $1900 being spent. Banks cannot just create new money. If the $1900 was spent, the bank would get shut down because it doesn't have the money to make good on it.

I see now that you get this point.

I would also point out that the $900 is a loan, so that is only a temporary increase to M2. That $900 will get paid back which will decrease M2 by exactly $900. So it is not inflationary. It is just spending future income today. In other words, the monetary base has not increased.

However. you do have to increase the amount of money people can spend because we have a growing economy. If you don't increase M0, you will have deflation. So the way the economy gets real, additional money to spend is by the FED's primary monetary tool: open market operations. By buying bonds it deposits M0 money in banks which essentially gives banks more money to work with.

.

"I know something about you though...you never worked for the Fed."

Of course, you would know better than me where I worked. But if I did work for the Fed as an analyst, I would probably point out that the money multiplier has almost no effect on the expansion of credit or how much money people are spending in the economy. The reserve requirement has virtually no impact on banking operations. The amount of credit available is based almost entirely on their timed deposits, which due to their nature of being timed, are not subject to the same reserve requirements as demand deposits.

[-] 1 points by SteveKJR1 (8) 2 years ago

John I just watched the video and you know what - he makes absolutely no sense.

In his first example he loans money to build an irrigation ditch. He then states once the irrigation ditch is completed the workers have the money and give it to the bank as a deposit.

Well, that's about as false an assumption as anyone could play out. If you are building a irrigation ditch, there are expenses associated with it - materials have to be bought, wages have to be paid, food has to be bought, etc.

So, there is no money to be deposited - the money was use and spent on the project and workers.

He goes on to do the same in the 2nd example - false assumptions again - the money is spent for materials and labor. There is no money to put back into the bank.

So as you can see, money that is borrowed is spent - it is spent to expand the economy, not falsly assumed not to be re-used and re-deposited.

[-] 0 points by john23 (-272) 2 years ago

Steve, you fail to see what the people who get the money do with it. Perhaps you go and pay for food with the money, or pay for materials....what do those people do with the money?? They put it in a bank. Lets say they don't, they spend the money on clothes maybe...well then what happpens? The company who gets the money deposits it in a bank. The point is that somewhere down the line that money is deposited in a bank, where fractional reserves take over. You're actually somewhat correct, however, in saying that a certain percentage of money created by the treasury remains as "hard" money (money outside of the bank), and there are equations that are used to predict this percentage....but the majority of it does actually end up in the bank to be loaned out via fractional reserves even when you take these equations into account. Makes sense right? The vast majority of people have a great portion of their money in the bank, as do businesses. I don't mention this because it's a hard enough concept for people to understand to begin with (as you can see with the discussions) without adding in this part of it also (why Khan doesn't discuss this also). Most people don't think that far ahead as you did, but you're partially correct.

[-] 1 points by SteveKJR1 (8) 2 years ago

Ok, say a person works and makes money - maybe part of that money will be deposited in a bank - not the full amount as was stated being borrowed for the project.

If you listen to what is being presented in the video he is saying that all the money that was borrowed for the project was distributed to the people and is then returned to the bank - it is not - only a portion of it may come back if that.

Lots of people are living paycheck to paycheck so they don't have the reserve resources to put money in the bank as a savings account.

Now, when the money does come to the bank in the form of a deposit by the individual who worked on that project, it is listed as an asset and is not in any way shape or form part listed as part of the original loan that was given for the project.

.

[-] 0 points by john23 (-272) 2 years ago

You're right, not everyone has all their money in the bank, but the vast majority of money does make it back to the banks...i'm not making this up. You can look up the current values for the different money supplies M1, M2 etc. and see the basic extent of money pyramiding on the economy. The fed has equations which show the percentage on average that is put in the bank and the percentage held in cash on hand in the economy (known as the currency drain ratio). Khan didn't go into this because it is complicated....but the theory is absolutely correct in the video. The amount of money created via fractional reserves is in no way unsubstantial when you factor in the currency drain ratio. If you want to dig into the equations for this you can check out:

http://en.wikipedia.org/wiki/Money_multiplier

You said: "Now, when the money does come to the bank in the form of a deposit by the individual who worked on that project, it is listed as an asset and is not in any way shape or form part listed as part of the original loan that was given for the project."

My answer: Actually the deposit is a liability for the bank, as the bank owes this to the depositor on demand (when he/she wants it back). So whatever percentage of the money in the economy that is deposited in the bank, is the percentage that the banks can pyramid debt off of. As long as the money is deposited in the bank, fractional reserves are at work.

[-] -2 points by john23 (-272) 2 years ago

I hate this comment being at the top of the page, because the website is absolutely correct. Anyone reading the above comment first dig through on their own:

You can read through any economics textbook to backup what i'm saying...you can dig through a ton of them for free online:

https://www.google.com/search?q=Fractional+reserve+banking&btnG=Search+Books&tbm=bks&tbo=1

For yet another book specifcally pointing you to the information flip straight to page 549...this textbook was written by "Nicholas Gregory "Greg" Mankiw is an American macroeconomist and Professor of Economics at Harvard University":

http://books.google.com/books?id=UT64rsFG1b0C&pg=PA549&dq=Fractional+reserve+banking&hl=en&sa=X&ei=VZK_T8GPGKX_sQKS-83jCQ&ved=0CF8Q6AEwBw#v=onepage&q=Fractional%20reserve%20banking&f=false

Another source posted below:

http://ecedweb.unomaha.edu/ve/library/hbcm.pdf

For even more assurance that money is created through fractional reserves refer to these free PDF books provided by the mises institute that are written by economists: Here is one that goes into it in detail that you can read online (go to page 200 and start at "An Isolated Banks Capacity for Credit Expansion and Deposit Creation":

http://mises.org/document/2745/Money-Bank-Credit-and-Economic-Cycles

Another that goes into this in detail to buy that is a quick read is:

https://mises.org/store/Product2.aspx?ProductId=528

Or if you're a wikipedia type person read their discussion of fractional reserves:

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CFUQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FFractional_reserve_banking&ei=OLu_T7uTLsHi2QXg3JHrBg&usg=AFQjCNHR0wq5hh6NzbGvJk2GtdVFbHQQpA&sig2=mcKy2XKtn_4se2hWS-gHbA

Or a video to explain for those who don't like to read:

http://www.khanacademy.org/finance-economics/banking-and-money/v/banking-3--fractional-reserve-banking

They all backup the fact that money is created through fractional reserves.....even the Fed's own monetary measuring tools measure money creation through fractional reserves....that's why M0 is less than M1 which is less than M2 which is less than M3.

[-] 1 points by atki4564 (1259) from Lake Placid, FL 2 years ago

Excellent link, and related sub-links, especially the sub-links as they give you even more to think about, but my primary concern is the strategy (or steps) needed to defeat the system which is to create our own banks, and related currency, which is perfectly legal, to stop them (the big banks and the big government) from cyclic robbery (or debasement) of us. If we control our own banks, and related currency, then the next step is to take control of our own small businesses (using our new banks and currency) as mathematically detailed here in a new constitution for new times. Do you see any mathematical flaws in this new constitution?

https://docs.google.com/a/strategicinternationalsystems.com/document/pub?id=1mKKLMTIyvRCLK2ppPj_GDjdieCvJnATaZaCmlajubWU

[-] 1 points by migarce (7) 2 years ago

To solve the matter pls. read http://ecedweb.unomaha.edu/ve/library/hbcm.pdf

[-] 1 points by MattLHolck (16833) from San Diego, CA 2 years ago

what's the name of that link ?

shirley ellis - the name game

[-] 0 points by john23 (-272) 2 years ago

thankyou...reposting that link above among the other links i've provided.

[-] 0 points by agkaiser (1274) from Fredericksburg, TX 2 years ago

With a reasonably good, if not very detailed history of civilization covered, Veritas thinks it's time to talk some about the general workings of Wall St. “Traders don't carry around cash to do their business. How is credit extended to them? How does that work? We're told that by the standard practice (and law in some jurisdictions) of fractional reserve banking an institution maintains a ten percent reserve of deposits or assets and loans out the rest. Neoclassical Economists (or Neocla in Pilkington's ironically coined newspeak contraction) assume that deposits precede loans but the Australian economist, Keen, exposes that myth. There's a two week delay before the reserve rule must be satisfied by, ultimately, borrowing [fiat] money from the FED.”

Carlos asks the professor, “People are also borrowing 10 to 100 times the value of their assets. That's called leverage. Are banks doing the same on the assets they hold as reserves? Instead of ten percent reserves and loan the rest of deposits, do they utilize ten times [or more] the assets to make loans?”

“They'll never say so, though they boast of the miracle of multiplier effect, which is also debunked by Keen. When the bank or the trader uses his leveraged credit to buy stocks, the money is created on and transferred between the electronic ledgers of the financial institutions that carry the trades. At the end of each day the various financial institutions may have taken in as much as they put out. They may not need to visit the FED (tonight or in a fortnight) in order to pretend to obey the fractional reserve rule. And if the stock prices have increased due to the trading, then so has the value of their assets. But the confusion between fractional reserve and leverage hasn't been cleared up, has it? Because it's probably deliberate double talk, it probably never will be made clear what's going on.

“Do price increases in the stocks due to purchases funded by leverage, create more money assets in the system? Apparently so. I'm certain they do nothing to the existence of material goods and properties that give all currency and securities their value. How many imaginary investments, including bank loans, are made on credit backed by imaginary assets? What happens when someone diverts some of the imaginary [leveraged] money to the real world economy of production and consumption of material goods and property?”

The professor continues. “While the accounting rules that deal with leverage are complex, the fact that they can be evaded with disastrous effects are obvious. Google the Lehman Brothers collapse. There's no need to track the maneuvers point by point to see the fraud in the creation of these imaginary assets and electronically minted money.”

“Presumably the money they create on their electronic ledgers can be used to buy real goods, on which they drive up the price by competing with the rest of us for things the con artists wouldn't have been able to purchase without the imaginary money their scam injects into the supply.” Lefty sees through most frauds eventually. “Is this why they say that easy credit due to low interest rates encourages inflation? Yeah. Right. That's what they were talking about.”

“But here's what I'm talking about,” says Cabeza. “Banks are allowed to loan us money that they've never had and which strengthens the bonds of our indenture to them. If you can't see what's wrong with an elite class dominating the majority in this way, God help the Human Race, because we're incapable of helping ourselves. We accept the right of parasites to afflict us and threaten our survival and give us only bullshit in return for our freedom and security, which we've surrendered to our masters so they may increase profits that hurt us even more.”

Doctor Economicus explains for the layman. “Remember, trading of stocks on the exchange doesn't finance the production of real goods. I doubt even the corporations that trade their own stocks, do so with the intention of increasing their physical capital or manufacturing capacity, if they have any. They're after short term profits and the only thing that most of them make is money that inflates the supply. How is a $15-20 trillion economy affected by hundreds of trillions worth of derivatives of imaginary securities? Not to worry! The monetarist told us the velocity of money precludes the need to increase the supply and therefore fights inflation. Trade more, trade faster. When imaginary money moves on electronic ledgers it's at the speed of light.4 Leverage is only one way the banks and elite investors steal from us. There exorbitant fees and penalties add insult to injury.”

“Stop!” Lefty can stand no more. “No matter how complicated the machinations, the brainchild of the 'best and brightest' can make nothing from nothing. Creation of money, even when we pretend it's not so because the government isn't doing it, can only increase inflation. Will a real economist explain this to us scientifically?”

Dr. Economicus gives a theoretical explanation. “Matter and energy are real things but time/space and compound interest are imaginary. Like the money they create, the latter has no substance. Like time and space, it's only value is for measurement and exchange. Money has a price but is worth nothing on its own. If its supply is mathematically dilated, it suffers a proportional loss of value.

For more on dysfunctional economy and culture see: How Does That Work? https://www.createspace.com/3852916

[-] -1 points by peacup (-44) from Murray, KY 2 years ago

How you get screwed:

PDCF

TSLF

TAF

AMLF

various swap lines

a temporary guarantee for money market funds

various supplemental financing programs

CPFF

MMIFF

Maiden Lane

Maiden Lane II

Maiden Lane III

TALF

direct purchases of MBS from the GSEs

allowing various investment banks to become "bank holding companies"

recripocal currency agreements

TLGP

Quantitative Easing (QE) 1

QE Lite

QE2

The coming QE 3, 4, 5, 6 , and 7

.

[Removed]