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Apr 18, Banking 96 comments. Banks keep on lending money, but where do they get it from? Do they borrow from bigger banks who borrow from bigger banks who borrow from the central bank who then prints the money? Is it as simple as just printing more money? Turns out money creation sometimes appears out of thin air. All banks lend based on a reserve ratio of their deposit: Of course, the whole system is dependent on a the bank being responsible with lending, b everyone not defaulting on their loans.

This becomes a NEW deposit for the bank a PRIMARY deposit. At this point there is no change in the Ms money supplyonly the composition of it. M1 outside bank to M1 in demand deposits. The bank will now: A Keep a little in reserve to meet cash demands, B Lend the rest out to worthy borrowers.

Remember we are in a one bank scenario monopoly. This process repeats itself indefinitely until they can no longer lend out money.

This whole concept is called: The theoretical maximum of course depends on whether the target reserve ratio is correct. Some things that affect the max include: These are simplistic examples of how banks create money using the scenario of a single Bank acting as a monopoly in the banking industry. Huge trouble develops when the asset becomes worthless many homes ; someone needs to face all the losses. Read another related article to money and banking located here.

Banks are getting desperate these days; bankers have even been known to practically beg customers to deposit money! What is the liability in the second balance sheet?

Since the bank has sold a loan without giving up any cash because who ever the bank lent it too put it straight back into the bank then both the capital and the interest are profit. Profit is still a liability but it is money owed to the shareholders. Have I understood correctly? In a foreclosure the banks exchanges a paper called a promissory note for a real assets. The trick is to get people to sign in the dotted line. Imagine that a home sells for k.

Another 75k went for labor and rental equipment to aid in building the home. The contractor, subsequently, sells the home for k and pockets 50k for his effort. Some credit worthy customer comes along and decides they are going to buy the home and so they put up 50k for down payment and a bank finances the rest, k. In a matter of 15 years, depending on the interest rate, the banks would have profited k from the interest.

The payment of the principal will eventually come unless…something happens to the debtor and he cannot fulfill his promissory obligation. Now the homes goes into foreclosure.

The banks gets the house, the previous 50k down payment, all the payments the debtor made to that point. What did the bank need to do to get this deal? Just write out a check to the debtor based on the idea that he will pay it back. It is not that banks loan money from deposits but that banks loans money for deposits. In this system you can imagine why and how Washington is full of politicians who cater to these powerful institutions. The probably have controlling interest in all major companies.

The future is bleak for the common worker. There does not appear to be any where to invest money for retirement. The financial institutions around the world are past fixing or understanding. This greatly benefits ongoing corruption witch is precisely what the industry wants. Money is, in the main, just a large IOY. Dose anyone really think that there is a physical dollar out there for every one spent?

Would you get all your money in cash? The inhabitants of countries are faced with the scourge that Thomas Jefferson mentions below. As one lad said …. Thomas Jefferson said in I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property — until their children wake-up homeless on the continent their fathers conquered.

Not Golman Sachs fan we hope……. We hope you are helping the Government put the creators of GFS behind bars……heheheh…. The Reserve Banking system is evil. If Mervyn King said it, he was probably being humourous Central Banks all work on this principle and have done since we were all born. FICO only matters if you are owned by a bank.

Once you are a free man your FICO score becomes 0. If you live debt-free then you exit the system and make the banks one iota weaker. If, over time, many people stopped living in debt the system would wane in power. The religious undertones of all of this are difficult to ignore.

I am an Atheist so permit me the liberty to recast God as the collective human wisdom of the ages. Just keep thinking beyond the materialistic urge we were warned against and things start to feel better.

Fortunately our Reserve bank over here is not a privately organised one like in the USA. So what if there is slower growth and thus ,slower profit taking by huge banks and multinational companies. Thus they maintain their wealthy status quo. The enviroment and the resources of the earth might be stronger and more capable of sustaining us all, but instead we must all be allowed to aquire debt so we can keep a bunch of bankers, economists no insult intended to the individual top ranking shareholders, directors etc.

Of all the ways of organizing banking, the worst is the one we have today… eliminating fractional reserve banking explicitly recognizes that the pretence that risk-free deposits can be supported by risky assets is alchemy. To work, financial alchemy requires the implicit support of the tax payer… For a society to base its financial system on alchemy is a poor advertisement for its rationality.

No one seems to have pointed out that the original example given is actually wrong. It also would not help the wider economy.

Any bank in the system will be keen to loan money to a non-bank source if they can get a significantly better return than lending to each other.

However, this will have the same reduction on the thoeretical max M4 type money supply as an increase in the reserve. If it has too many defaults, the bank goes bankrupt and the government deposit guarantee scheme, the banks shareholders and depositors and the rest of the banking sector picks up the losses.

The example does work if we assume that the single bank is only one and is acting as if there were multiple banks in the system. I have added some additional formulas at the bottom of the article to reflect deposit creation multiplier.

Imagine a dialogue between the bank and yourself: I have read this post and if I could I want to suggest you few interesting things or suggestions. Perhaps you can write next articles referring to this article. I wish to read even more things about it! The fractional reserve system works as long as there is confidence in the banks. If the economy gets into serious trouble and individuals are worried about their money in the banks then they will race to the bank to remove the money they deposited.

Also the reason inflation is not as it appears is because all the money created in our system is still debt owed to bankers. A better way to look at it — bankers and their associates through loans at interest have captured much of the wealth of the world.

Since ALL money is created as interest-bearing debt owed to bankers, there is always a SHORTAGE of currency for everyday transactions for the rest of us. For you to say that banks have the money they loan out on mortgages reveals that either you have never studied modern banking thoroughly or you are putting out false information deliberately to make banks look like legitimate businesses.

Do the terms leverage and fractional reserve banking mean anything to you? And if fractional reserve banking is morally acceptable, why are only a chosen few in society allowed to practice it without going to jail.

If a non-banker sells something of which he has only one of to twenty people who each think they are buying that entire item, he is guilty of fraud. And in a nutshell, that is modern banking. Thanks Barry Mr Bernacke was caught out……. Many Leaders, eminent Bankers, thier Magazines, Governors of many Banks have said so. Gobbly gook, econo speak, sure does prove any different…. Uni taught folk could see how the system works….

Some of us have worked in the Banksters system…. You must ALWAYS have an asset to back up what you are lending. That money then is technically tied into an asset, however, that asset depreciated the house. So banks lose millions of dollars Which they have.

Fed Res Bank Bernacke said on the news last year……. So does the US Govt buy the printed money at the Feds cost to print or buy it off them face value. He forgot what he said months prior…. And then we have the news media lying to us acting as if the super rich pay a lot in taxes when in reality the bloated governments around the world operate to keep the corrupt banking system going.

The biggest terrorists are those working on Wall Street everyday — manipulating numbers, debt in order to steal from everyone else. LG — Sorry to let you know, but money systems are fraudulent. Banks get to create all the money as interest-bearing debt owed to them. That is why globally governments and people are all in debt and there is NO money. Armored cars round up the debt-notes Federal Reserve Notes that temporarily circulate and return them to the banks who then loan them back out at interest.

Bankers and their associates profit greatly from this system. The rest of us work hard and never get ahead. Evil in the form of banks runs the world. I am hoping that some of you bank-savvy folks on this forum can help me. I am being told by a group that is helping people save their homes from foreclosure the following: Then you pay them again through monthly payments plus interest. They are saying that banks are being paid twice, and that you can sue them for damages because of this.

You registered it with the state, gave them controlling interest in it, now you need DL, tag, insurance, and they monetized it to run gov. Thanks for your non contribution.

You are forgetting about C: And c that enough money, needed to pay the interest, is created in the future plus enough to replace all the money in existence as the mortgages and loans are paid off. It is imposable to have any significant changes forced on it now or ever.

Web of Debt by Ellen Brown is an excellent book to read to understand how entire population is paying interest for the money supply to the private banks for the money that we our government could have printed:. If the government simply printed the money and made it the legal tender of the land, then we would not have to pay interest to the bankers for our entire money supply.

What we have is financial slavery and people are not aware. American Revolutionary War was fought for the right to print our own money and not borrow it from bankers.

Andrew Jackson paid national debt and we had prosperity for a while. Jackson survived assasination attempt. Abraham Lincoln rejected to borrow from bankers and funded the civil war with money printed by the government.

JFK signed the executive order and gave the U. This is surely the right of the Government on behalf of the people alone. If Banks could create money from nothing, what do they need you for? When you recognise that YOU are the creator of money, because only People can create wealth through labour, then you may be able to get a grip on the way things work.

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In the case of a mortgage, your promise is sold on the stock market as a mortgage backed security that the government guarantees and your monthly payment is passed through to the investor, CMHC lays out the whole scheme scam on their website.

The Bank has no further interest in the mortgage and no risk but they keep convincing you that they hold the note, in fact, they are engaged in fraud when they foreclose. But People who are too lazy to ANY investigation keep falling for it. Folks, money we use is NOT the cash.

Do you buy a home with 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:. 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.

It is only a theory remember. 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 collapse. 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…. 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. 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? I mean how can so much credit be created and their still be enough paper money to go around? Say thats all the money the bank had for the sake of argument then the bank has to borrow the forex reserves of india pdf Does he borrow it from other banks at interest? Also, u know in the budget report? 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??? THe point of fiat money is that in theory the entire system is supposed to operate with integrity and maturity. 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 vanilla and binary options differences. So, whether you save or borrow, they have control over your financial destiny.

If you bought a home ten years ago and paid for it in how to get quick money on hay day, say, 1, gold dollar coins, and sold it today for the same 1, 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. 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. 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. 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. 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.

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…. And it seems the Legal Practitioners Union in Australia Law Society of which to practice one is expected to join… some years ago….

What brands do trade secret stock money…thin air money And the Bankster gets away with it. It has happened in Australia……. Do they get together anyway???? Nice to find you aussies learning this stuff as I am myself here in the states.

How do we bypass the banking system? The fact of the matter is that the whole banking system is a scam, we do not need banks, yet we wanted them…. Banks hope there will not be a run on the accounts because they do not have enough in reserves to cover panic withdrawls.

The scam is run with the full support of the government by insuring accounts through the FDIC. Banks take in the deposits and by financie law, they then own the money.

If they squander the money, as they did in this meltdown of our financial system, they can not be charged with theft or embezzelemt. Legally, the money is theirs to do with it whatever they want. If the bank fails, the FDIC gives our money back or the bank gets a bailout and we start over. Lovely little money earner appears never give a sucker an even break.

Many folk have to work on or go back to work. Why do they need to do this? Why on earth are banks borrowing money when they can create it based on the deposits they hold? Well, well……seems all Economic gobbly gook. Of course neither the Bank, Shareholders or Depositors are short of the funds supposedly lent to the borrower.

Appears in reality the money supposedy given to a borrrower does no exist…. How many Bankster top dogs have been put in jail so el mejor sistema de trading forex I believe all banks must adhere to some form of reserve ratio.

The Banks lend thin air money…. Oh they say that they borrow other Banks money……. One could not help thinking as the system is sleight of Hand…. Banksters appearing to lend to each other…. Foxes in charge of the hen house…. Goodness these guys in the Res system…. What you are talking about is the velocity of money. For example, interest as paid by a consumer, is very real as it cuts into what money they do have to pay the debt.

However, if the balance of the debt is paid off, then the bank has the interest as well as the principle. Home mortgages is one thing, unsecured loans like credit cards, are another.

The interest paid by the consumer to the bank is used by the bank to pay their expenses and their other depositors. However, the default rates are rather silly, IMHO because if the universal default rule applies, the consumer now has a bigger payment to make, thus making it more difficult to discharge the debt, which leads to people defaulting because of bank intractability.

Velocity is the ability of money being moved through the system. If I owe Charles fifty dollars, I pay buying jewelry from overstock.com. That debt is satisfied. He owes Doris thirty dollars and Chad twenty.

Those debts are satisfied. Doris pays Ron the thirty she owes him and Chad pays Jenny the twenty he owes her. Thus, fifty dollars just paid dollars of debt. There is much confusion about money notes and coins and credit by banks. So to say that banks lend your deposits does not seem valid. That is why all banks are fearsome of cash runs because the notes issued by the Central Bank are not sufficient to satisfy the amount of money created.

When the economy is booming more ahmed adel forex are employed more income and businesses prosper more profits the Central Bank must print more notes to sustain that additional expansion thus enabling banks to create more money.

There are many references said in different ways that Banks create money out of thin air. It appears that Bankers usually are upset that they do not understand how their Bank realy creates money out of thin air…. Hey the system has to have the illusion of being strong…. Suggest we follow the yellow brick road…. I have moved additional comments that were of exceptional thought and quality into a new thread to make things manageable.

Great topics and thoughts. Please view the new article here:. Ok buddy I give up. All we, as individuals can do is watch our corner of 60 second price of a binary options mt4 wold.

As for the rest of us poor bar—-ds. We have got to stop being the poor uninformed victoms here. Some times you just have to think outside the box. This is the best time to force big changers by lobbying gov reps.

The best way to stop shooting you self playing russin rullet is to stop playing the game. Find your self a safer one. Tomorrow it could be worth nothing then we move to another system of banking such as value of goods barter. No, affiliate affiliate affiliatemarketerstool.com internet make money program remains the same give everyone 1 million bucks nobody is better off.

Why do you say money is not entirely created out of thin air Barry? I heard a radio documentary a short while ago about the sub prime crisis which interviewed a person working in the World Bank that said that between and the world money supply doubled and they had never seen such a massive growth before.

Where do you think that money came from? How was it created do you think? Money is borrowed into existence in the first instance.

This borrowing may be people buying holidays or experiences. It may be to fund a wedding. It may be just to survive and buy food and pay interest payments on existing debt. Indeed I know that is a significant feature of personal debt that people are drawing cash from credit cards, making minimum payments and using the cash to pay minimum payments on other cards.

Of course this is the path to financial ruin but as you see from the rising bankruptcy rates this is a growing problem. It is also true that a quick ways for students to earn money deal of borrowed money does actually buy houses, cars, furniture, business purchases, government purchases so your idea that some of the loaned money is backed by real world valuable assets is correct.

The central problem though as far as I can see is that NO economy has any permanent money within the country or region — all money has a temporary existence based on debt based money creation via bank credit. If all the individual, business and government debt was repaid the money supply in that country would disappear.

Even though these vast valuable assets had been bought and paid for by honest labour, no money would exist. This is the system we live in. The system of constantly disappearing money where each new generation has to toil again to earn money to pay new loans to banks to buy. Look at a Victorian house in London and ask yourself how many times that same house has been bought and paid for, each time requiring a new bank loan to bring money into the economy to buy something that has been bought and paid for umpteen times.

There is a constant focus in standard broken economics that all countries need constant growth. You mention it in the last paragraph of your comment Barry. Why do we constantly need growth? Answer is to pay for the extra debt money on the interest of the current money that is loaned into existence. And next year you need more and so on.

It is a system that has limits. And we have reached the mathematical end point of that growth that can be supported by the actual real wealth creators within the economies. The people have been maxed out. Drained of any further ability to support this fraudulent system of banks getting more and more of everything — for nothing. You mention Barry countries like Bolivia. All these so called 3rd world countries are kept in this position by the corrupt IMF and World Bank.

This is a despicable act of cruelty that is forced on developing nations by the prosperous nations. But that is another story….

Catalina marketing stock symbol, money is not entirely created out of thin air.

The assets and the liabilities at the end of the day should remain balanced. Both have happened in the US. It really boils down to the issue in a free market economy and that is GREED. Otherwise, this system is necessary in order to spur growth which is based on investment which requires lending. It has become quite an amazing spectacle to see the daily disaster headlines of more and more major banks liquidation stock warehouse uk financial headlines and news reports.

It has come to completely dominate the news in nearly every country of the world. The terrible repercussions of the flaws in the financial systems of the world will now hopefully, slowly open itself up to more and more people being bothered to learn about this corrupt, fraudulent and despicable banking system that is at the heart of the mess we are now in. It may be though that some good may come out of this coming total crash of the world economic system.

It would be good if we could begin the process now of getting the strategy developed for a fair system that can replace the fraudulent banking system. Some thoughts… First off there are no experts in economics. Economic experts have totally failed us for too long. We need to get back down to basics and think about the root of the flaws in the present system and what we can possibly replace them with.

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I do not put myself forward as an expert or that my opinions are correct but I will put forward what I see as the basic flaws in the system and suggest something that might work instead of what we have now. Flaw 2 is that banks are permitted to create the money supply in economies and effectively control and own the money supply therein.

This they charge interest charges on for money that is effectively counterfeit created out of thin air by simply typing the amount into there computer systems.

Gosh I wish I had a computer that could magic money like that. Since there is insufficient money in the system to pay the principal and the interest due to the fact that only the principal is created into the money supply there is a constant pressure cooker effect in every economy to get growth. The enormous pressures of insufficient money in the system is responsible for nearly all the ugly news of bad things in our world, from wars to environmental decimation of the planet it is all down to the pressure created by the financial system itself.

How strange it is that most folks have no clue about the root cause of these big problems in the world. The key missing factor in our economies is a permanent supply of money created by governments at zero interest and remaining in existence. Instead of money being temporary it needs to be permanent and not requiring an interest charge just on existence. Money is like a natural social need within all countries and economies to enable the efficient transfer of value.

We need to figure out a method of issuing the money by government into society without the need for private banks to create it as interest bearing debt of temporary money. Money could be created as loans for home mortgages for example at zero interest. Thus home owners would not pay twice for the property via principal plus interest and the money repaid would add to the permanent money supply of the country.

Instead of money being fiat money, this money would be backed by a real world asset that most people would agree has proper value — a house or dwelling. Governments could also do away with the massive borrowing from the fraudulent financial system each year and the theft of money from citizens via all kinds of taxes to pay principal and interest to banks. Money being used for physical infrastructure could be flagged as money that stays in the economy as permanent money.

Money for paying wages or services would not stay in the economy and would be deleted as money came back in as tax. Over a few years using this system tax burdens would decrease steadily. Then there is the issue of where we are at now. Vast numbers of people have profited to excess by this fraudulent system.

The vast disparity in wealth of people in society is unjust and inequitable and governments need to figure out how to re-distribute from those ill- gotten gains back into the people. These thoughts and ideas are just crude ideas as regards reforms. Of course changing the world financial system is one of the most challenging things to contemplate.

Come on guys, free your conciousness and let the ideas flow. Who was the author that had to flee the country: Does anyone have a source that can unequivocally clear this up? We live in a debt-based system. If a bank has to balance its books then so must an economy. How can a debt be repaid with interest if that money to pay the interest does not exist?

And in the blink of an eye everything is in balance again, the scarecrow finds his brain, the tinman his heart and we arrive home — just in time to hear the music start again!! Very thought provoking posts here. We can agree there is no real value in fiat money. The system does not make sense in that it outpaces the ability to perpetuate itself. There is really only one solution and that is complete failure or long term depression that should lead to recaliberating monetary systems.

Hi Baza No, govenments do print money. Dave, local Tbills in local currency. There is a correlation between T-bill demand and the demand for dollar if everyone wants Tbills.

Printing billion notes and giving it all would devalue the entire system and drive inflation sky high. They have to make the money somehow or pull it from reserves. Just think how cheap a house would cost if you borrowed from your own, non prophet fund. My question is in regard to the system of US Govt borrowing from the Fed and securitization of those notes.

When the Fed sells US debt securities, is the payable in the foreign currency or US dollars or some neutral currency gold? If foreign currency, does that mean a weaker dollar effectively increases the debt? If US dollars, does that mean the security is worth less to the foreign investor? Does the share price look cheap or expensive at that point.

Also if the government is buying up all these assets because they have failed to provide liquidy to the market, why is no saying that they are going to make the buying and selling of these types of assets illegal. Is the because the governments wants to try and sell them back to the banks at a another time. That said, how long before we need a buy out for that. Interesting article about the senate vote http: To conclude that all banks overlend and are greedy is an over statement although from the outside they look like piggies fat ones.

The system will remain, tougher rules on borrowing are ths things needed now. Seems Politiicians love to let the Foxes run the hen houses. All not normal …. The cycle of over lending is never ending. Wonder which Government has the gonads to bring in stingent controls.

Which Government Leader has the gonads to tackle the Foxes???? Seems in South America there is a move…. Guess we have to read between the lines as John Perkins words hit home. Regardless of what you may say the money creation ideas are crucial to the development of economies. You just need that one aspect—responsibility. You see now before you what happens when you overlend and everyone defaults. The bank goes bankrupt and you see the government finding ways to dump cash into the market.

The Political leaders appear to have pandered to the money changers for far too long…. One only has to read the whistle blowers expose …. Prof Joseph Stiglitz or John Perkins Confessions of an Economic Hitman to get a feel from their experiences……the lack of humanity in the systems are evil…. One could form the opinion that these forces will protect their position as if in a war no rules ……their house of cards depends on it.

My understading is that money does not get destroyed when a loan is repaid. Sure, money is created out of thin air so to speak by banks but as it gets repaid the banks keep that money as well as the interest.

I believe now that the financial systems of the world are the chief evil in the world and the forces that are driving wars, starvaton and environmental disasters. When a Bank lends money it can create a debt in the borrowers name…. New funds have been created without any Banker,Shareholder or depositor short of funds.

Good sleight of hand. So you see Banks can lend out funds to there hearts content if there are parameters they certainly seem to blow it …. All the gobbly gook can not change the simple fact…….

Sir Josiah Stamp, Director of the Bank of England, said……. The process is perhaps the most astounding piece of sleight of hand ever created. Bankers own the earth……. Remember that assets and liabilities remain the same. If there is a default, then the bank must find a way to bring that money off its books as a liability. If everyone defaults then the system would collapse.

But what happens to the money when the loan is defaulted on? The loaned money stays in circulation. The lending bank records a loss and possibly reduces its lending. Remember, that the asset versus liability position still remains assets and liabilities. However according to statistics Bureaus Banks in Aust lent out lots more that 9 times their deposits…. Seems the population are being cooked slowly……. Of course the high interest rates ……. However the people are waking up. You all have to remember that on the balance sheet the bank still only has assets and liabilities.

See Wiki for an example of that. There is a Bank ABXY in a small town with no money. At the beginning, there was no money. Money is not only cash, it includes bank balances.

Banks can create money.

Late in the Day

How can I create a SMALL bank in US or cash advance? Thanks for that Barry……. The Federal Reserve System relies upon in…. They could not run a business on that small amount of margin……this myth of margin has been exposed by many a noted Banker.

Why even the former Governor of the privately owned bank like the fed in USA Reserve Bank of Australia said in the E. This last source differs from the 1st three because when the money is lent by a bank it passes into the hands of the person who borrows it without anybody having less.

When a bank lends, it creates credit. Against advance which it enters amongst its assets, there is a deposit entered in its liabilities. But other lenders have not this mystical power of creating the means of payment out of nothing. What they lend must be money that they have acquired through their economic activities. The Banks maybe lends the deposits of the depositors….

The river of interest flowing back to the banks per hour is unbelievable. Maybe the Bible should be adhered to by folk …Exodus In any event interest it most certainly fuels inflation… another sin of the system. However the brainwashing continues it seems…. Banks DO in fact lend out your savings, where else do they get the money? The whole sub prime mortgage problem is rooted in banks losing their investments because people default on loans.

Are we to believe that Banks lend our deposits? One would suggest it appears fiction …. It is interesting to note explanations of how credit is created. Report of Select Committee many a Leader has been quoted. Webmaster, do you think this tactic is possible. I have tried to follow your explanation using your example of the one-bank monopoly and am a bit lost. The person then returns and deposits the money with the same bank, with the resulting balance sheet looking like this:.

However, no new money cash has been created. The situation you describe basically has people taking money from the bank and putting it right back in. The balance sheet grows as the amount of loans and deposits rise, but the amount of cash in the system remains the same. Designed by Elegant Themes Powered by WordPress.

Where Do Banks Get Their Money? Fractional Reserve Banking Apr 18, Banking 96 comments. Do Banks Create New Money out of Thin Air? A quick way to determine the theoretical maximum a bank can lend out is this formula: Here are some additional items that may affect how much money the bank can create.

Related deposit creation multiplier equations: Steven Lupton on March 13, at 4: Mike on February 5, at 4: Steve on June 25, at 7: Bob on June 25, at 4: Bob on June 24, at 6: An economist on June 22, at House on November 29, at You say that like it is a bad thing. Bob on June 22, at 6: After all the gobbly gook…… Mervyn King current Governor of the Bank of England reportedly said: An economist on June 21, at 7: Ro Econ on December 18, at Angela Adams on May 27, at 1: Mayme Gunnels on March 24, at Shane Curran on March 22, at Jay on January 5, at Banking is the biggest scam in history.

Bob on January 3, at 4: Bob on January 1, at 9: Jay on January 1, at 3: Jay on January 1, at 2: LG on November 24, at 9: Al on May 30, at Miles on November 4, at 4: You made a serious mistake and need to re-read modern money mechanics. RN on September 26, at 5: Bob on September 9, at 5: Steve on September 8, at 8: Bob on August 19, at 9: Mike Smith on August 19, at 3: Aussie Dave on May 18, at 2: Jack Flash on May 16, at 2: Mike Smith on February 23, at Here is a video to explain it how banks create money better: Chris on January 4, at 7: Robert Searle on October 24, at 2: For those interested in the subject please google MONETARY REFORM on the net.

Bob on October 5, at 6: 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…. Terry Hammonds MSW on June 29, at 7: Bob on June 23, at 7: Mammoth on June 16, at 9: Prosper Mabuya on May 17, at I am completely lost.

Bob on April 15, at 1: Bob on January 24, at 6: Carolyn on November 23, at 8: Bob on October 22, at 7: To Debt Based Economics: Please view the new article here: Steve on October 11, at 8: Steve on October 10, at 2: JohnD on October 8, at 5: JohnD on October 7, at 5: Debt Based Economics on October 7, at Steve on October 7, at 2: Steve on October 4, at 9: Dave on October 4, at 7: Mario C on October 3, at Bob on September 28, at 8: Trillions of dollars has power…one could suspect.

Bob on September 26, at 7: Bob on August 25, at 7: JohnD on August 25, at 6: Bob on August 23, at 8: A simple format for lending is as follows…… When a Bank lends money it can create a debt in the borrowers name…. Bob on August 5, at 5: Good post THinklLogicol, However according to statistics Bureaus Banks in Aust lent out lots more that 9 times their deposits….

ThinkLogical on March 30, at 8: OLiver zoum on March 21, at 3: Bob on September 13, at 7: Remember the above example is merely theoretical. Bob on September 9, at 8: Admiralty Law It is interesting to note explanations of how credit is created. Dorky on September 7, at 8: Webmaster on July 19, at 5: Joe on July 18, at The person then returns and deposits the money with the same bank, with the resulting balance sheet looking like this: Mark on June 1, at 4: Webmaster on June 1, at 4: What does your employer do?

Mark on May 28, at 7: Search the Blog Search for: Popular Posts Microeconomics Cost Formulas Where Do Banks Get Their Money? Fractional Reserve Banking Microeconomics Profit Maximization: Shutdown Point Relation between Inflation and Interest Rates graph Why does the Canadian dollar go down if interest rates stay the same or go down?

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