reply to post by CookieMonster09
Couple of things - First, when a bank writes a legal contract with a borrower, that borrower typically pledges collateral.
Yeah I think you're completely missing my point here. Nobody cares what the bank buys. The only question on the table is where the money to buy it
with came from.
Nobody denies that banks have their own money but the vast majority of money lent out is fractional reserve cash. Bringing up the banks own money and
what they personally invest in is a minority topic. We're only concerned with how fractional reserve banking works.
Like I said only the fed can create true new money that continues to exist. Fractional reserve banking and money creation are two different topics.
Regular banks don't do this. They create digital money that doesn't really exist due to the multiplier effect, but it's just an accounting thing. It
shrinks and grows with the economy. Or appears to anyway.
They take your money and loan it out, but they tell you, all your money is still there. Say I deposit $100,000 and the bank loans $90,000 of it out to
someone to buy a house.
Sure the bank now has the house as an asset, but it's irrelevant. Because if I come by to withdraw my money tomorrow they're not gonna say hey sorry,
loaned your money out. But we got this house! No, they're just gonna take $100,000 from other people's accounts and give me my money.
But the previous home owner still has the $90,000 in his pockets. So now you got this $190,000 floating around the economy.
But where did the extra money come from? Well it came from other people's accounts. The only problem is, the bank is still telling all those people
that all their money is still in their accounts. But it's not. They just gave it to me so I could make my withdraw.
But digitally the money supply just grew. Digitally everyone's accounts either stayed the same or got larger. But in reality we know that's not
However, eventually someone will deposit that $90,000 back in the bank and it will balance again. The borrower will find a way to collect $90,000 from
the economy and pay the bank back, like say, working for a couple decades. Or the borrower will default and the bank will sell the asset. When they
do, that $90,000 will come back to them from the economy.
See, it all works out in the end. It's not a problem.
But I'm not one of the people that believes there's too much money in the economy. Perhaps that is what's confusing you. Many of the conspiracy
theorists believe there's too much cash in the economy and it's gonna cause massive inflation and that's why the system is gonna collapse.
But I'm not one of those people. At least not when it comes to fractional reserve banking. I have the exact opposite view. There's not enough money in
the economy because not enough people have jobs where they can borrow. The money just sits in the bank and rots. It's a debt based system which means
the wheels don't really spin unless someone's in debt.
After the housing collapse people's credit went to crap and banks stopped loaning causing the money supply to appear to shrink just like it appears to
grow when people borrow. Don't believe my theory? Just ask your friends and family if you can borrow $1,000. See how that works out. Then come back
and tell me if you think the problem is there's too much money, or not enough money.
edit on 4-11-2012 by tinfoilman because: (no reason