Comments on: Where Do Banks Get Their Money? http://www.discusseconomics.com/banking/where-do-banks-get-their-money/ Topics including: credit crunch, recession articles, personal finances, debt management, interest rates, cash flow, micro and macroeconomics. Tue, 23 Feb 2010 19:37:12 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: Mike Smith http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-3/#comment-26767 Mike Smith Tue, 23 Feb 2010 19:37:12 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-26767 People are asking: "No new money was created (cash)". Folks, money we use is NOT the cash. Do you buy a home with 100 dollar bills? Do you buy a car with cash? Many does not even buy groceries with cash. We either write a check or use the credit card. Thus, money is the IOUs that bank has created as your bank account. Yes, your bank account does not have the actuall green cash! But the banks promise to pay you does work like money. Promises to pay (DEBT) is our money supply. Here is a video to explain it <a href="http://www.tradingstocks.net/html/banks_create_money.html" rel="nofollow">how banks create money</a> better: <a href="http://www.tradingstocks.net/html/banks_create_money.html" rel="nofollow">http://www.tradingstocks.net/html/banks_create_money.html</a> Now, people are saying well, banks should not be doing this, doing that! Folks, bank deposits are guaranteed (on paper) by the FDIC. In reality nobody can guarantee the value of bank deposits in an entire economy. But that aside, this guarantee blinds the depositors. They do not question bank actions. Thus, unchecked, banks feel free to take excessive risk. If they go bust, FDIC pays for it. If FDIC goes bust, tax payer pays for it. If the government goes bust, they will print money and we will get worthless paper for it. But at the end it is a bankrupt system that is created to sustain the life style of bankers at the expense of the real economy that works to create actual value. People are asking: "No new money was created (cash)". Folks, money we use is NOT the cash. Do you buy a home with 100 dollar bills? Do you buy a car with cash? Many does not even buy groceries with cash. We either write a check or use the credit card. Thus, money is the IOUs that bank has created as your bank account. Yes, your bank account does not have the actuall green cash! But the banks promise to pay you does work like money. Promises to pay (DEBT) is our money supply. Here is a video to explain it how banks create money better:

http://www.tradingstocks.net/html/banks_create_money.html

Now, people are saying well, banks should not be doing this, doing that! Folks, bank deposits are guaranteed (on paper) by the FDIC. In reality nobody can guarantee the value of bank deposits in an entire economy. But that aside, this guarantee blinds the depositors. They do not question bank actions. Thus, unchecked, banks feel free to take excessive risk. If they go bust, FDIC pays for it. If FDIC goes bust, tax payer pays for it. If the government goes bust, they will print money and we will get worthless paper for it. But at the end it is a bankrupt system that is created to sustain the life style of bankers at the expense of the real economy that works to create actual value.

]]> By: barry econ http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-3/#comment-25701 barry econ Fri, 08 Jan 2010 16:25:09 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-25701 It is only a theory remember. The point is the banks are supposed to be mature enough NOT to lend out 90% of their cash. However, at the end of the day (clearing drains) you may find banks borrow from other banks to get more cash to settle accounts (which I believe happened at the 2008 collapse). The central bank pegs interest rates called prime rate, the other banks are supposed to follow suit, but they don't have to. The best borrowers get the 'bank prime rate' which is generally 2% higher than prime. Central banks get their money by selling bank notes like bonds (thus removing money supply from the system). They could also sell foreign currency (buying back their own currency)..... Of course, they could simply print more money, but that would increase inflation (but central banks are printing money righ tnow.....) It is only a theory remember. The point is the banks are supposed to be mature enough NOT to lend out 90% of their cash. However, at the end of the day (clearing drains) you may find banks borrow from other banks to get more cash to settle accounts (which I believe happened at the 2008 collapse). The central bank pegs interest rates called prime rate, the other banks are supposed to follow suit, but they don't have to. The best borrowers get the 'bank prime rate' which is generally 2% higher than prime.

Central banks get their money by selling bank notes like bonds (thus removing money supply from the system). They could also sell foreign currency (buying back their own currency)..... Of course, they could simply print more money, but that would increase inflation (but central banks are printing money righ tnow.....)

]]> By: Chris http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-2/#comment-25587 Chris Tue, 05 Jan 2010 02:17:47 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-25587 Very interesting discussion, I understand the theory behind the article and it makes complete sense that this would happen in a fractional reverse banking system i.e. savings deposited into a bank result in an exponential increase in credit availability. But I still don't understand the central banks role, the central banks set the interest rates and this dictates the level of interest with which banks can borrow from the central bank. So a slash in interest rates means that banks can borrow from the central bank more cheaply and therefore supply more credit, releasing more liquidity into the market. But where do the central banks get their money from? and also I understand how the factional reverse banking system increases the money supply but how can banks lend out ALL this money at the same time? I mean how can so much credit be created and their still be enough paper money to go around? for example if bank A takes a deposit of £10 and their is a reserve requirement of £1. Bank A then lends out the £9, this money is then deposited in Bank B. If the guy who deposited the £10 Bank A wants his money withdrawn then bank A is £9 down. Say thats all the money the bank had (for the sake of argument) then the bank has to borrow the money? Does he borrow it from other banks at interest? or from the central bank? Also, u know in the budget report? in the UK? it is always a big deal what the interest rates are set at, because it affects the interest rates for consumers. But it is my understanding ( i may be wrong on this) that when the central banks sets its interest rates it is only setting the rate at which banks can borrow form the central bank. Not the interest rate for everybody, but it does affect the rates for everybody. But why are bank borrowing from the central banks anyway??? why are they borrowing from them at all? and where is the central banks getting it's money from? I'm really confused, could someone please explain this to me? Very interesting discussion, I understand the theory behind the article and it makes complete sense that this would happen in a fractional reverse banking system i.e. savings deposited into a bank result in an exponential increase in credit availability. But I still don't understand the central banks role, the central banks set the interest rates and this dictates the level of interest with which banks can borrow from the central bank. So a slash in interest rates means that banks can borrow from the central bank more cheaply and therefore supply more credit, releasing more liquidity into the market. But where do the central banks get their money from? and also I understand how the factional reverse banking system increases the money supply but how can banks lend out ALL this money at the same time? I mean how can so much credit be created and their still be enough paper money to go around? for example if bank A takes a deposit of £10 and their is a reserve requirement of £1. Bank A then lends out the £9, this money is then deposited in Bank B. If the guy who deposited the £10 Bank A wants his money withdrawn then bank A is £9 down. Say thats all the money the bank had (for the sake of argument) then the bank has to borrow the money? Does he borrow it from other banks at interest? or from the central bank? Also, u know in the budget report? in the UK? it is always a big deal what the interest rates are set at, because it affects the interest rates for consumers. But it is my understanding ( i may be wrong on this) that when the central banks sets its interest rates it is only setting the rate at which banks can borrow form the central bank. Not the interest rate for everybody, but it does affect the rates for everybody. But why are bank borrowing from the central banks anyway??? why are they borrowing from them at all? and where is the central banks getting it's money from? I'm really confused, could someone please explain this to me?

]]> By: barry econ http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-2/#comment-25172 barry econ Mon, 14 Dec 2009 06:21:21 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-25172 THe point of fiat money is that in theory the entire system is supposed to operate with integrity and maturity. If that collapses then you're in huge trouble. THe point of fiat money is that in theory the entire system is supposed to operate with integrity and maturity. If that collapses then you're in huge trouble.

]]> By: Mark S. http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-2/#comment-24986 Mark S. Fri, 04 Dec 2009 22:06:12 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-24986 As a follow up, we have a fiat monetary system. The feds can print as much as they like. When they inflate the money supply, they devalue the dollar which is a tax on your wealth. When they inflate interest rates, they charge you more which, again, takes more of your money. So, whether you save or borrow, they have control over your financial destiny. Precious metals such as gold and silver which hold their value over time are harder to control since they can't increase those supplies easily. If you bought a home ten years ago and paid for it in gold, say, 1,000 gold dollar coins, and sold it today for the same 1,000 gold dollaw coins, would you be faced with capital gains? The gold coins would be worth more in dollars today than ten years ago, but the coins themselves would be the same as those you used ten years ago. The feds don't like that equation. Again, fiat money which they have complete control over and is used to rob you of your wealth is what is at stake here. This is how governments control their people and make slaves out of them. Get off this system and you become free. As a follow up, we have a fiat monetary system. The feds can print as much as they like. When they inflate the money supply, they devalue the dollar which is a tax on your wealth. When they inflate interest rates, they charge you more which, again, takes more of your money. So, whether you save or borrow, they have control over your financial destiny. Precious metals such as gold and silver which hold their value over time are harder to control since they can't increase those supplies easily. If you bought a home ten years ago and paid for it in gold, say, 1,000 gold dollar coins, and sold it today for the same 1,000 gold dollaw coins, would you be faced with capital gains? The gold coins would be worth more in dollars today than ten years ago, but the coins themselves would be the same as those you used ten years ago. The feds don't like that equation. Again, fiat money which they have complete control over and is used to rob you of your wealth is what is at stake here. This is how governments control their people and make slaves out of them. Get off this system and you become free.

]]> By: Mark S. http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-2/#comment-24985 Mark S. Fri, 04 Dec 2009 21:44:18 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-24985 What is being described is called LEVERAGING. It all stems from the central bank/federal reserve. They lend money to the banks. The banks lend it to us. This increases the money supply. Then products and services expand as a result of the increased supply of money. The money gets repaid to the feds and the money supply tightens. The feds keep a close eye on the availability of the money supply thru interest rates. If they want a tighter supply of money they increase rates which brings the money back to them quicker. If they want borrowing to increase, they drop rates. This increases the supply back into the market, but may increase inflation. The problem is, the banks are their conduit for this process. Without the banks, they fail too. So, they cannot let the banks fail at any cost. It's not as complicated as the original article states. It all starts with the federal reserve's monetary policies. What is being described is called LEVERAGING. It all stems from the central bank/federal reserve. They lend money to the banks. The banks lend it to us. This increases the money supply. Then products and services expand as a result of the increased supply of money. The money gets repaid to the feds and the money supply tightens. The feds keep a close eye on the availability of the money supply thru interest rates. If they want a tighter supply of money they increase rates which brings the money back to them quicker. If they want borrowing to increase, they drop rates. This increases the supply back into the market, but may increase inflation. The problem is, the banks are their conduit for this process. Without the banks, they fail too. So, they cannot let the banks fail at any cost. It's not as complicated as the original article states. It all starts with the federal reserve's monetary policies.

]]> By: Robert Searle http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-2/#comment-24272 Robert Searle Sat, 24 Oct 2009 08:57:20 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-24272 I am glad that people on here are waking up to the reality that BANKS CREATE MONEY OUT OF THIN AIR as something which is repayable (ie. a loan). However, the amount they can produce depends on the amount of existing reserves. The latter makes up a very small amount necessary for what is termed credit creation, or fractional reserve banking. If you study any economic textbook the process is outlined but they do not ofcourse express the claim that the money is electronically created out of thin air. For those interested in the subject please google MONETARY REFORM on the net.. I am glad that people on here are waking up to the reality that BANKS CREATE MONEY OUT OF THIN AIR as something which is repayable (ie. a loan). However, the amount they can produce depends on the amount of existing reserves. The latter makes up a very small amount necessary for what is termed credit creation, or fractional reserve banking. If you study any economic textbook the process is outlined but they do not ofcourse express the claim that the money is electronically created out of thin air.

For those interested in the subject please google MONETARY REFORM on the net..

]]> By: Bob http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-2/#comment-23824 Bob Mon, 05 Oct 2009 12:34:17 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-23824 Pete there ghas to be away. But could be difficult. The opposition from the Banksters would be intense as you are aware of many Leaders who tried through the ages were murdered! Old Abe Lincoln put it something like he did not fear the army in front of him but the Banksters at the back....is that a fair interpretation? Rest his soul. Seems the Banksters have a noose around Governments/countries, politiicians throats by law/&or other means . And it seems the Legal Practitioners Union in Australia (Law Society) of which to practice one is expected to join... some years ago....maybe still is..... was sponsored by different Banks at various times....well so the Law Societies Brochures adds said (on the backs of their brochures) .....so any one having a case debated in Court and a Bank was the opposing mob .....one could not help thinking..... maybe there will be some kind of bias towards the Bankster/s. (seems the presiding Beak would not excuse him/herself from the Court even if there was conflict of interest) And just maybe financial documents showing the debt (statement )..... requested by the Judge..... will not be brought into Court & just maybe the Judge will give a ruling in favour of the Bankster whilst the Bankster really is in contempt of Court for not presenting relevant documents....ledger card..... showing loan created by a debt as the 1st entry on the card/account. (FIat money...thin air money) And the Bankster gets away with it. It has happened in Australia.......So one could only feel uncomfortable at the relationship between Banksters & Lawyer/Beak, Judge or Legal alternative. Do they get together anyway ???? Maybe drinks, golf, shares, sport,clubs, perhaps other benefits/associations we are unaware of??? Pete there ghas to be away. But could be difficult. The opposition from the Banksters would be intense as you are aware of many Leaders who tried through the ages were murdered! Old Abe Lincoln put it something like he did not fear the army in front of him but the Banksters at the back....is that a fair interpretation? Rest his soul.

Seems the Banksters have a noose around Governments/countries, politiicians throats by law/&or other means . And it seems the Legal Practitioners Union in Australia (Law Society) of which to practice one is expected to join... some years ago....maybe still is..... was sponsored by different Banks at various times....well so the Law Societies Brochures adds said (on the backs of their brochures) .....so any one having a case debated in Court and a Bank was the opposing mob .....one could not help thinking..... maybe there will be some kind of bias towards the Bankster/s. (seems the presiding Beak would not excuse him/herself from the Court even if there was conflict of interest) And just maybe financial documents showing the debt (statement )..... requested by the Judge..... will not be brought into Court & just maybe the Judge will give a ruling in favour of the Bankster whilst the Bankster really is in contempt of Court for not presenting relevant documents....ledger card..... showing loan created by a debt as the 1st entry on the card/account. (FIat money...thin air money)
And the Bankster gets away with it. It has happened in Australia.......So one could only feel uncomfortable at the relationship between Banksters & Lawyer/Beak, Judge or Legal alternative. Do they get together anyway ???? Maybe drinks, golf, shares, sport,clubs, perhaps other benefits/associations we are unaware of???

]]> By: pete http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-2/#comment-23780 pete Fri, 02 Oct 2009 18:41:23 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-23780 Nice to find you aussies learning this stuff as I am myself here in the states. Question - what can I or anybody else do to protect ourselves and/or how can I (we) make money to propser in the middle of this fractional reserve banking scheme? How do we bypass the banking system? Nice to find you aussies learning this stuff as I am myself here in the states. Question - what can I or anybody else do to protect ourselves and/or how can I (we) make money to propser in the middle of this fractional reserve banking scheme? How do we bypass the banking system?

]]> By: nicole http://www.discusseconomics.com/banking/where-do-banks-get-their-money/comment-page-2/#comment-21235 nicole Wed, 15 Jul 2009 11:12:29 +0000 http://www.discusseconomics.com/articles/banking/where-do-banks-get-their-money/#comment-21235 Hi Guys The fact of the matter is that the whole banking system is a scam, we do not need banks, yet we wanted them.... Hi Guys

The fact of the matter is that the whole banking system is a scam, we do not need banks, yet we wanted them....

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