This is starting to get a little scary Page 366

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  • Jazzassin 9 Dec 2012 16:46:52 75 posts
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    LeoliansBro wrote:
    Either I don't understand banking and money or that article doesn't. Banks don't create money out of thin air.

    But they do create money out of thin air, that's the entire point of the cash-to-loan ratio.

    If a bank has 100 million worth of deposits, and they hold onto 10 mil of that, and lend out the remaining 90 mil, they've created 90 mil of new money because both the depositors and the borrowers will think they have 90 mil worth of money and will behave accordingly. And the new money's not just in their minds, it does "exist" digitally.

    That's just as real as new money created by governments. No one actually goes and prints out new bills these days, except to replace worn out ones,
  • ComradePete 9 Dec 2012 20:44:16 496 posts
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    Errol wrote:
    We haven't had the crash yet. We are looking at the death of paper money - paper money collapse.
    Well at least hyper-inflation will take care of our huge debts.

    Trebles all round!
  • spamdangled 9 Dec 2012 22:20:22 27,911 posts
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    Isn't QE just creating money out of thin air?
  • Gaol 10 Dec 2012 00:41:03 2,529 posts
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    Surprised at the naivete in this thread.

    What Jazzassin is failing to describe is fractional reserve banking, it's accepted economic theory.

    Banks do create money, it's basically about only a proportion of lent money having to exist on deposit allowing the money supply to multiply. Read wiki:

    http://en.wikipedia.org/wiki/Fractional_reserve_banking

    Edited by Gaol at 01:08:27 10-12-2012
  • Khanivor 10 Dec 2012 01:42:05 41,818 posts
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    Taking lessons from someone who doesn't understand difference between theory and practice.
  • mcmonkeyplc 10 Dec 2012 09:47:31 39,854 posts
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    Saying banks create money out thin air is like saying adding a margin on a product is creating money out of thin air.

    Think about it.
  • Jazzassin 10 Dec 2012 10:41:46 75 posts
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    LeoliansBro wrote:
    Jazzassin wrote:
    LeoliansBro wrote:
    Either I don't understand banking and money or that article doesn't. Banks don't create money out of thin air.

    But they do create money out of thin air, that's the entire point of the cash-to-loan ratio.

    If a bank has 100 million worth of deposits, and they hold onto 10 mil of that, and lend out the remaining 90 mil, they've created 90 mil of new money because both the depositors and the borrowers will think they have 90 mil worth of money and will behave accordingly. And the new money's not just in their minds, it does "exist" digitally.

    That's just as real as new money created by governments. No one actually goes and prints out new bills these days, except to replace worn out ones,
    Cute. But no.

    Why label banks in this way, why not cut out the middle man, so to speak? Say I lend you 100. According to you I've just created that money out of thin air, because you think you have 100 and so do I.

    Of course this isn't the case - the fact is you don't think you have 100 at all, you think you owe 100, and will behave accordingly.

    Call it cute or whatever you want, but you still don't get it.

    If I borrow money from you, I'll have the money and you won't. You won't be able to use your money without getting it back from me first.

    Banks don't work like that. If you deposit money in a bank and they lend it to someone else, you can still go withdraw your deposit and use it at any time.

    Edited by Jazzassin at 10:46:07 10-12-2012
  • grey_matters 10 Dec 2012 10:50:57 3,931 posts
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    Only governments (through central banks) can print new money. Commercial banks have to balance the books, unless they fuck up so badly that they have to be bailed out.
  • mcmonkeyplc 10 Dec 2012 10:53:44 39,854 posts
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    And?

    You're saying that cause banks don't keep all your money in their vaults all the time their creating money out of thin air?

    I suppose simplistically speaking that's true...if you don't count loans that the bank makes with your money as an asset.


    The reserve ratio (minimum a bank has to keep liquid) is the realistic amount that it will have to give out at any one time. Unless there is a bank run.

    Do you want the banks to just sit on your money? What would be the point in that for them?
  • mcmonkeyplc 10 Dec 2012 10:58:09 39,854 posts
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    I beat you to it! :p
  • Dangerous_Dan 10 Dec 2012 11:02:10 2,390 posts
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    @Jazzassin

    Banks lend more money than they have. If I deposit 100 pounds in a bank they'll loan out to other people about 10 times as much. It's called fractional reserve banking and that's the reason why there is much more money in circulation than issued by the central bank.

    This became an issue in the 2008 crisis. If I am in debt and I can't pay back my 3000 pounds to the bank then I got a problem. If I owe the bank 3 billion pounds and I can't pay them back then the bank got a problem.

    This is why the central banks issued new money in 2008 to "save" the banking system.

    QE is the term which the US central bank uses when they save the banks or they save the US treasury from defaulting. By either issuing new money or in case of the US bank by lending them new money at about 0% interest.

    The reason why banks do and should earn money via interest on loans is because the debtors may not be able to pay it back which is a risk and potential loss for the banks.
    Now the problem is if I don't let any bank go bankrupt and keep bailing them out that the whole monetary system becomes a joke. If someone tells you that if your debts are high enough that you'll be bailed out with no serious consequences then you not gonna be very responsible with your finances me thinks...

    That's a part of the problem.

    Edited by Dangerous_Dan at 11:03:54 10-12-2012
  • mcmonkeyplc 10 Dec 2012 11:21:23 39,854 posts
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    Who's gonna start talking about M1 > M5?!

    Cause that's when I'll lose the will to live :)
  • Dangerous_Dan 10 Dec 2012 11:37:02 2,390 posts
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    The thing is I'm not in favor of the fractional reserve banking as is.
    Our financial system needs a constant monetary expansion - without it it will default.

    And constant monetary expansion is in the long run devaluating the deposits of the money-saving population. It's a transfer of wealth from the working people (the guys who actually do something productive) and it's the most effective way of robbing people of their personal freedom which is very much tied to ones wealth.

    Savings which are save enable people to say No to some piece of shit job. A class of debt serfs is weak and dependant.

    Eventually it will turn around that's like saying there will be sunshine after rain. The more interesting question for me is how to get ahead now, how to preapare, how to make the best out of things right now.
  • Dangerous_Dan 10 Dec 2012 12:11:44 2,390 posts
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    You talk about the entitlements of the low income class I get that. Yes they profit from inflation which is keeping all those entitlement programs afloat. The state needs inflation as well to devalue its debts.

    And you talk about the class of debtors who profit from inflation after buying a house or a new OLED Tv by going into debt.
    You used the word empowered. And that is very fitting. That class is empowered and yet I do not want to be empowered myself. I want power and self-determination, something very different in my views. This would get a way too long much more encompassing topic.

    The way to escape poverty I find this bit sums up my thoughts half-descently:


    I find it funny that people on the left argue against the evil capitalist banking system and people on the right defend it.
    Me, I think this banking system is working very much in tune of marxism. Now you know how fucked up my views are ;)

    Edited by Dangerous_Dan at 12:12:59 10-12-2012
  • spamdangled 2 Jan 2013 04:23:03 27,911 posts
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    I'm sure there are lots of sighs of relief going on now that a Fiscal Cliff solution has been agreed.
  • mcmonkeyplc 2 Jan 2013 09:15:16 39,854 posts
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    What's impossible?
  • sport 14 Jan 2013 11:47:08 13,039 posts
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    You've NAILED it LB!!
  • MightyMouse 14 Jan 2013 13:14:50 1,152 posts
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    People use the word 'political' in odd ways a lot of the time. I presume they meant the motivation behind the Bank of England's decisions isn't whether they favour one party or another? Though since the chancellor appoints the governor of the BOE, that's taking a lot on trust from some distinctly untrustworthy people.
  • Dougs 14 Jan 2013 20:47:33 72,141 posts
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    HMV are fucked then. Administrators called in, shares suspended. Always on the cards
  • Load_2.0 14 Jan 2013 20:56:14 20,820 posts
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    The high street is fucked. Non of these closures suprise me.
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