I think this is the beginnings of an economy based on perpetual growth and fossil fuel energy running headlong into geological energy constraints. Basically I see an undulatory downward path for the rest of my life. From here out, I think any rallies in our economic condition are going to be met with spiking commodity prices that knock us right back down.
Joined: Apr 13, 2005 Posts: 3155 Location: St.Louis, Mo
Posted: Mon May 15, 2006 8:09 pm Post subject: fractional banking and the gdp
When banks receive deposits they can lend 10 times the amount of that money, that is called fractional banking . Example, If you deposit 100 dollars, they can lend 10 times that amount which is 1000 dollars. They basically create than money out of thin air. So when these loans are made, this fictitious money goes toward the US gdp. Therefore, our gdp is over inflated because of this fictitious money. Doesnt make any sense. We are a society created by debt, which is unsustainable in the real world.
Joined: Oct 01, 2004 Posts: 214 Location: Germany/Ohio
Posted: Tue May 16, 2006 6:41 am Post subject: Re: fractional banking and the gdp
Besides, it doesn't work that way.
A bank can only lend money that passes through its hands.
If 10% is in its books, it borrows 90% from another bank (or wherever) in order to lend out 100%. Only the government can "make" money like you are proposing. _________________ This is the way the world ends,
Not with a bang but a wimper!
T.S. Eliot
Joined: Apr 13, 2005 Posts: 3155 Location: St.Louis, Mo
Posted: Tue May 16, 2006 7:54 am Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
Besides, it doesn't work that way.
A bank can only lend money that passes through its hands.
If 10% is in its books, it borrows 90% from another bank (or wherever) in order to lend out 100%. Only the government can "make" money like you are proposing.
thats not true. They lend that 90 % which doesnt exist. They are the ones that create money out of thin air. Governments only print money.
Joined: Oct 01, 2004 Posts: 214 Location: Germany/Ohio
Posted: Tue May 16, 2006 8:11 am Post subject: Re: fractional banking and the gdp
???
In order to give someone money (yes, you can borrow money and let the bank pay you in cash, for instance) you have to have it first. Or what do you pay the person who just sold you the house that you borrowed 200 grand on? Most sellers would prefer real money instead of a promise of 90% fake money, don't you think? _________________ This is the way the world ends,
Not with a bang but a wimper!
T.S. Eliot
Joined: May 22, 2004 Posts: 1428 Location: Ottawa, Ontario
Posted: Tue May 16, 2006 8:21 am Post subject: Re: fractional banking and the gdp
Quote:
thats not true. They lend that 90 % which doesnt exist. They are the ones that create money out of thin air. Governments only print money.
You better go back and check your facts, Peak Plus is correct(er). If you like here is a simple thought experiment to show that it can't be the way you imagine it.
If the bank could lend more than is deposited then the bank could in practice make an infinite amount of loans since it could at will expand it's capacity by simply making a loan to itself and depositing the money in the bank. If banks were able to get away with this, money would lose all value as there would be in practice an infinite amount of money available.
The banking system does have a money multiplier effect, but you should read up about it carefully (and perhaps from some more authoritative sources) before posting. As a start I'll point you to Wikipedia _________________ Biofuels: The "What else we got to burn?" answer to peak oil.
Joined: Dec 25, 2004 Posts: 446 Location: Salem, MA
Posted: Tue May 16, 2006 10:10 am Post subject: Re: fractional banking and the gdp
armegeddon wrote:
When banks receive deposits they can lend 10 times the amount of that money, that is called fractional banking . Example, If you deposit 100 dollars, they can lend 10 times that amount which is 1000 dollars. They basically create than money out of thin air. So when these loans are made, this fictitious money goes toward the US gdp. Therefore, our gdp is over inflated because of this fictitious money. Doesnt make any sense. We are a society created by debt, which is unsustainable in the real world.
this is true, but your numebrs are not quite correct.
Fractional Reserve banking is nothing short of stealing. It creates inflation, which robs our money if its value. A return to the gold standard would create a lot of problems in the short-term, but fix a lot of problems for good in the long-run... _________________ UNLESS
Joined: Dec 25, 2004 Posts: 446 Location: Salem, MA
Posted: Tue May 16, 2006 10:15 am Post subject: Re: fractional banking and the gdp
Peak_Plus wrote:
Besides, it doesn't work that way.
A bank can only lend money that passes through its hands.
If 10% is in its books, it borrows 90% from another bank (or wherever) in order to lend out 100%. Only the government can "make" money like you are proposing.
The treasury creates a bond, and "sells" it to the Federal Reserve, who then writes a check to the government, who spends this newly created money, causing inflation. the federal reserve has no account on which this check was drawn from. but now the bond that they bought from the treasury counts as "reserves" and they are indeed allowed to print 9 times the amount of dollars as bonds as they have in reserve. they sell most of these dollars to commercial banks at interest. they are earning interest on money they created out of nothing. banks then turn around and can loan 90% of what they borrow from the Fed, and charge higher interest. not to mention once you receive a loan--what do you do? put the money in the bank... so the bank can loan 90% of THAT money too... it's a scam and it is as unsustainable as our energy infrastructure...
in any other business this would be totally illegal. _________________ UNLESS
Joined: Apr 13, 2005 Posts: 3155 Location: St.Louis, Mo
Posted: Tue May 16, 2006 11:40 am Post subject: Re: fractional banking and the gdp
what is funny is that banks use your money for loans, but have you ever seen your account debited for these loans ? That shows you that this money they use is money that was created from nothing, because your money is still in your account.
Joined: Oct 01, 2004 Posts: 214 Location: Germany/Ohio
Posted: Tue May 16, 2006 1:21 pm Post subject: Re: fractional banking and the gdp
armegeddon wrote:
what is funny is that banks use your money for loans, but have you ever seen your account debited for these loans ? That shows you that this money they use is money that was created from nothing, because your money is still in your account.
"The treasury creates a bond, and "sells" it to the Federal Reserve, who then writes a check to the government.."
Yes, this is the only way that money is "created".
The only way that gold "currency" is created, on the other hand, is by digging up more gold...
Your local bank (a non federal institution) has nothing to do with the process.
It takes your money, pays you 1.5% interest to you and lends it for 6% interest to someone else. That's banking.
Or do you thing the bank should keep it in its safe, where it can't make any interest at all???
How is it supposed to pay your interest PLUS its employees? _________________ This is the way the world ends,
Not with a bang but a wimper!
T.S. Eliot
Posted: Tue May 16, 2006 5:45 pm Post subject: Re: fractional banking and the gdp
nero wrote:
If the bank could lend more than is deposited then the bank could in practice make an infinite amount of loans since it could at will expand it's capacity by simply making a loan to itself and depositing the money in the bank. If banks were able to get away with this, money would lose all value as there would be in practice an infinite amount of money available.
That is correct. The key is that each iteration encompasses *less* money than the deposit.
Example: I deposit $10 in the bank. The bank only needs to keep 10% to hedge against monetary reclaims. So they loan out $9. Technically, only $10 are in the system, but both the original owners and the new owners think they have this money. So effectively $19 are in the system.
Now those $9 are deposited into another bank (or even the same one!). They only need to keep 10%, so they loan out the other $8.10. Now we have total claims of $10 + $9 + $8.10 = $27.10, all from the original $10.
You can continue this process if you want, but the total amount stabilizes at $100. The money is not in a form able to be reinvested, because most of it is already invested! (techinically all of it, if you carry out the iterations above ad infinitum)
Posted: Tue May 16, 2006 7:11 pm Post subject: Re: fractional banking and the gdp
emailking is correct. The end result is that a $10 deposit becomes $100 of deposits via the loan and re-deposit process, but the bank can't just loan out $90 from a $10 deposit.
There is a semantic issue over whether the banks create "money" or "credit". I guess it's more correct to say they create "money substitutes" or "credit-money"; however, the distinction is somewhat moot as all deposits are treated equally regardless of whether they originated as payment from someone who borrowed the money. If the initial deposit was "money", then so are the deposits created from the loan process. They can all be used as final payment for goods and services, provided we ignore the inherent illiquidity of the banking system and only a small proportion of people demand cash.
All times are GMT - 6 Hours Goto page 1, 2, 3, 4, 5Next
Page 1 of 5
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot edit your posts in this forum You cannot delete your posts in this forum You cannot vote in polls in this forum
News
Discussions
Resources
Members
Forum FAQ
Search
Usergroups
Profile
Log in to check your private messages
Log in
