Money as debt

My download crapped out after 3 minutes and I don't have time to watch the whole 47 mins anyway because I need to go to work, at the bank, where I magically create money out of thin air (I actually did do this the other day, in error, and got into bit of trouble for it as an internal account had a surplus and I could find nowhere to put that extra money).

The author of the video is right in one regard: the banking system "creates" money. He's wrong in his assumption of how it's done.

Any loan/mortgage the bank issues does have to have a deposit to offset it. The bank can't create the money out of thin air (like I did the other day, by accident). There is even a required reserve ratio, which stipulates that the bank can't lend out 100% of the money deposited, it has to keep some of the money on hand in case the depositors want it back. I think in Canada it's fixed at 20%. Don't quote me on that though, I learned my economics in the U.S., where the RRR can be changed by the Fed to increase or decrease the supply of money in the economy.

Here's some Econ 101, on how money is "created" by the banking system:

-Person A deposits $100,000 into Bank A. Assume Bank A has a 20% RRR.
-Bank A lends out $80,000 to Person B.
-Person B buys a Porsche from a private seller, person C.
-Person C deposits $80,000 into Bank B
-Bank B holds on to 20% of it and lends out $64,000 to Person D.
-Person D deposits it into Bank C
-Bank C holds on to 20% and lends out $51,200 to person D...

...you get the picture, it goes on and on like that. Just in the example above, person A's original $100,000 deposit has spawned $195,200 in additional deposits at other banks.

Thalo wrote: ↑ ...you get the picture, it goes on and on like that. Just in the example above, person A's original $100,000 deposit has spawned $195,200 in additional deposits at other banks.

When the deposit/lend cycle continues to the last penny, additional deposits will total $400,000.

Maximum additional deposits = initial deposit / RRR - initial deposit

Thalo wrote: ↑ (I actually did do this the other day, in error, and got into bit of trouble for it as an internal account had a surplus and I could find nowhere to put that extra money).

You should ask for bonus. A lesson from Mr. David Miller, mayor of Toronto, who got himself a raise well before deficit became obvious.

I saw this about a month ago. I spent the first couple minutes bashing the cheap looking cartoon graphics and the rest of the time alternatively weeping and rocking back and forth.

Its scary stuff.

max88 wrote: ↑When the deposit/lend cycle continues to the last penny, additional deposits will total $400,000.

Maximum additional deposits = initial deposit / RRR - initial deposit

Yeah, forgot the formula.

Oh... so does that mean if everyone decided to with draw every penny, the world would go ape sh1t?!

UrbanPoet wrote: ↑Oh... so does that mean if everyone decided to with draw every penny, the world would go ape sh1t?!

Yup.

UrbanPoet wrote: ↑Oh... so does that mean if everyone decided to with draw every penny, the world would go ape sh1t?!

This is the reason CIDC insurance was created. So people won't be uneasy about their money and try to withdraw it all at once.

That's why changing interest rates can manipulate inflation. When rates go up, less money is borrowed, i.e., less money is created.

less money = less inflation.

im scared..

Fractional Reserve Banking makes you weep and rock back and forth? Some of you guys must lead very difficult lives.

It's even scarier than a moth attack!

There's nothing really to be scared of. Banks and the Bank of Canada are well oiled machines that would see a bank run coming years ahead.

If you can't beat 'em, join 'em.

Start your own bank/hedge fund, or alternatively, buy shares in one already started.