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.

I think I read or heard somewhere that 20% of all the money is actually real. The rest is all digital or a book figure.

If by "real" you mean exists in the form of paper currency, then you're probably right. Wouldn't be surprised if that number was lower.

Thalo wrote: ↑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.

I find your reply arrogant. It seems that you know so much about the economy, do you have a degree in Finance or what?

The video material presented is excellent and well documented. Nothing is wrong in it. It is you who is wrong, the deposits made by the people in the bank can't be touched, they serve as a collateral or consolidated capital for the bank. The key element in a fractional based system is the Federal Reserve, the reserve that each chartered bank has with the central bank (a bank which btw is not publicly owned but private entity like the Feds from US).

This fractional based system - which forbids a Government to print it own money and get it with interest from the rapacious BANK instead - it is the biggest scam of all time. Many US presidents were assasinated simply because they tried to get the control back. Because of these greedy and few people, the Government must gather the interest from us, the simple people, in form of taxes.

I would refrain from making comments on matters that you don't know very well. And I'm not saying that I know much, but at least I'm learning.

That link to the video, which I also got from the milionaire dollar journey blog, is more than welcome in educating this country!

netriones wrote: ↑Anyone watched this? http://video.google.com/videoplay?docid ... 2583451279

What's your thoughts?

On the same educational theme, I would also recommend another interesting movie - "The Money Masters".

smihaila wrote: ↑I find your reply arrogant. It seems that you know so much about the economy, do you have a degree in Finance or what?

The video material presented is excellent and well documented. Nothing is wrong in it. It is you who is wrong, the deposits made by the people in the bank can't be touched, they serve as a collateral or consolidated capital for the bank. The key element in a fractional based system is the Federal Reserve, the reserve that each chartered bank has with the central bank (a bank which btw is not publicly owned but private entity like the Feds from US).

This fractional based system - which forbids a Government to print it own money and get it with interest from the rapacious BANK instead - it is the biggest scam of all time. Many US presidents were assasinated simply because they tried to get the control back. Because of these greedy and few people, the Government must gather the interest from us, the simple people, in form of taxes.

I would refrain from making comments on matters that you don't know very well. And I'm not saying that I know much, but at least I'm learning.

That link to the video, which I also got from the milionaire dollar journey blog, is more than welcome in educating this country!

Again, I didn't watch the whole video, I just refuted what was stated in the first few minutes that the banks create money out of thin air and that loans don't need to backed up by deposits. Regardless of what the following 44 minutes of video have to say, if someone makes such a ridiculous claim in just the three minutes, then it doesn't warrant my time.

I don't consider myself an expert, I didn't major in finance (too boring) or economics (almost minored in it though). I do remember my Econ 101 though and I aced an ECON course on "Money and Banking". I majored in International Business, have worked for a bank for almost three years, completed CSC, PFPC and am enrolled to write the CFA level I exam in June.