posted on May, 20 2008 @ 07:29 PM
If you've been a reader of ATS for a while, you've probably come across someone or another making the claim that banks "print" money, or create it
from thin air. Ever wonder exactly how that system works? Is this claim well-founded, or just bunk? Well, I'll try and lay it out here. You be
First, we must know that based on fractional reserve requirements, banks must hold onto 10% of what they may be called on to cough up to their
customers. So the other 90% is what they're free to play around with. What they do with this 90% is to loan it out to charge interest on it.
So, knowing that banks are allowed to loan out 90% of the money on deposit, try and follow the magic money machine:
First, you deposit $100.
The bank loans someone $90 of your money. They still tell you your deposit is in the bank, and you can come and get it if you really want
That $90 that was loaned out will eventually find its way back to the banking system. The bank can then loan 90% of that money out, too, which is
The $81 will be the basis for a loan of $72.90
$72.90 is the basis for a loan of $65.61
$65.61 is the basis for a loan of $59.05
(I'll stop there. But this process can go on indefinitely...)
So what happened?
In the beginning, just $100 existed.
After the banks made all their loans, we can find this much money in the bank:
~ The original $100
+ The first loan of $90
+ The second loan of $81
Total: = $468.56
After just 5 cycles of the loan process, the banks have collectively made one hundred dollars become $468.56. This is more than we started with!
And that's how the bank turns their deposits into a magic money machine. They charge interest on $368.56 that didn't exist!
This is what banks don't tell you about the loan process, but explains why the business of loaning money is so profitable, so much so that 1
dollar in 4 of income in the U.S. comes from "finance" rather than any service or production of actual goods.
Did you know that the income from banking and finance isn't used to calculate gross domestic product figures? This is because banking produces
nothing. They don't get out in the world and grow crops, build schools, roads, or bridges, fix cars, run telecommunications cables, launch rockets,
or anything the world needs... yet the big bankers get paid very very well!
[edit on 20-5-2008 by ianr5741]