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Did you know banks create money when giving a loan?
silversides staff
Truth Prevails
User ID: 148291
07-11-2019 09:55 PM

Posts: 11,680



Post: #1
Did you know banks create money when giving a loan?
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Did you know banks create money when giving a loan?

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How Banks Create Money and the Money Multiplier- Macro 4.8




https://www.youtube.com/watch?v=JG5c8nhR3LE

Money doesn't grow on trees, but it does grow in banks. I explain how banks create money and how to use the money multiplier. For more practice go to my website http://www.ACDCecon.com or watch the unit playlist videos. Please subscribe and leave a comment. You rock!

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The Money Multiplier




https://www.youtube.com/watch?v=93_Va7I7Lgg

When you deposit money into a bank, do you know what happens to it? It doesn’t simply sit there. Banks are actually allowed to loan out up to 90% of their deposits. For every $10 that you deposit, only $1 is required to stay put.

This practice is known as fractional reserve banking. Now, it’s fairly rare for a bank to only have 10% in reserves, and the number fluctuates. Since checkable deposits are part of the U.S. money supplies, fractional reserve banking, as you might have guessed, can have a big impact on these supplies.

This is where the money multiplier comes into play. The money multiplier itself is straightforward: it equals 1 divided by the reserve ratio. If reserves are at 10%, the minimum amount required by the Fed, then the money multiplier is 10. So if a bank has $1 million in checkable deposits, it has $10 million to work with for stuff like loans and reserves.

Now, typically, the money multiplier is more like 3, because banks can always hold more in reserves than the minimum 10%. When the money multiplier is higher, like during a boom, this gives the Fed more leverage to move M1 and M2 with a small change in reserves. But when the multiplier is lower, such as during a recession, the Fed has less leverage and must push harder to wield its indirect influence over M1 and M2.

Next up, we’ll take a closer look at how the Fed controls the money supply and how that has changed since the Great Recession.

The Four Freedoms
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Pasta Lover
Registered User
User ID: 418981
07-11-2019 09:59 PM

Posts: 6,885



Post: #2
RE: Did you know banks create money when giving a loan?
Fractional reserve lending. Did you know the silver market works in a similar way. If every holder of silver paper requested the actual bullion, there would be a massive blowup because it doesn't exist in that quantity. This is similar to what happened to the real estate bubble. The notes on the houses were sold as derivatives and when it unwound the market crashed.
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LoP Guest
lop guest
User ID: 441610
07-11-2019 10:37 PM

 



Post: #3
RE: Did you know banks create money when giving a loan?
Yes. Capitalism.
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GrimShaw
Raise the Black
User ID: 470470
07-11-2019 10:39 PM

Posts: 11,702



Post: #4
RE: Did you know banks create money when giving a loan?
Yep. It's how this pyramid scheme stays afloat

You ain't a real lion if you love the circus
Hands are for shaking, not tying
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LoP Guest
lop guest
User ID: 442366
07-11-2019 10:52 PM

 



Post: #5
RE: Did you know banks create money when giving a loan?
LoP Guest  Wrote: (07-11-2019 10:37 PM)
Yes. Capitalism.

Incorrect.
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LoP Guest
lop guest
User ID: 442366
07-11-2019 10:53 PM

 



Post: #6
RE: Did you know banks create money when giving a loan?
Yes, I knew.

I keep telling people how insane it is. Nobody listens.
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LoP Guest
lop guest
User ID: 442366
07-11-2019 10:54 PM

 



Post: #7
RE: Did you know banks create money when giving a loan?
LoP Guest  Wrote: (07-11-2019 10:37 PM)
Yes. Capitalism.

So when you play Monopoly, one of the contestants gets to be the Bank?
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Natura Naturans
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User ID: 506340
07-11-2019 10:59 PM

Posts: 6,765



Post: #8
RE: Did you know banks create money when giving a loan?
Even under a gold standard, which the world was on before 1971, banks STILL created money from nothing. It got so out of hand with Nixon's Vietnam war and LBJ's great society programs the US gold hoard was being depleted. So Nixon closed the gold window and inflation shot up to 20% until Volcker applied high interest rates in the '80's But still, since then the US dollar has lost 97% of it's value and the way spending is going watch out for the 3% that is left.

“The highest activity a human being can attain is learning for understanding, because to understand is to be free.” --Baruch Spinoza
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LoP Guest
lop guest
User ID: 441610
07-12-2019 12:05 AM

 



Post: #9
RE: Did you know banks create money when giving a loan?
LoP Guest  Wrote: (07-11-2019 10:52 PM)
LoP Guest  Wrote: (07-11-2019 10:37 PM)
Yes. Capitalism.

Incorrect.

Nope, it is Capitalism.

Creation of money is the very heart of Capitalism.

Although no longer the 'base' of currency, gold is sold on the commodities market along with renewable items such as orange juice. It became necessary no longer use gold as the standard when the supply of it became more static than it had been.

Having a static amount of money would be Communism.
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LoP Guest
lop guest
User ID: 441610
07-12-2019 12:07 AM

 



Post: #10
RE: Did you know banks create money when giving a loan?
Money must be created everyday. If banks didn't create it, how would more money be created?
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Bao2
Registered User
User ID: 422170
07-12-2019 12:49 AM

Posts: 6,810



Post: #11
RE: Did you know banks create money when giving a loan?
Yes, that is what creates that money is worth nothing mainly (but also because it
is not backed by something physical).

So after several decades money is worth nothing and it must be reseted. So
a "big collapse" and all the money people has is worth nothing and they use
it to burn in winter as photos show in past collapses.

And it is planned just to reset the not worthing money.

Lot of suffering and deaths. All the bankers then buy the lands of people
by almost no money. This is the way to grab the resources of countries by
the richs that are above a specific country.
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LoP Guest
lop guest
User ID: 441610
07-12-2019 01:19 AM

 



Post: #12
RE: Did you know banks create money when giving a loan?
Bao2  Wrote: (07-12-2019 12:49 AM)
Yes, that is what creates that money is worth nothing mainly (but also because it
is not backed by something physical).

Why should it be backed by something physical?

What more valuable- hardware or software?
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LoP Guest
lop guest
User ID: 507283
07-12-2019 01:24 AM

 



Post: #13
RE: Did you know banks create money when giving a loan?
LoP Guest  Wrote: (07-12-2019 12:05 AM)
LoP Guest  Wrote: (07-11-2019 10:52 PM)
Incorrect.

Nope, it is Capitalism.

Creation of money is the very heart of Capitalism.

Although no longer the 'base' of currency, gold is sold on the commodities market along with renewable items such as orange juice. It became necessary no longer use gold as the standard when the supply of it became more static than it had been.

Having a static amount of money would be Communism.

Incorrect still.

I know that new money needs to be created for economic growth.

But apparently, the question of WHO creates it, has never crossed your mind.

Don’t know why you’d want a privately owned monopoly criminal cabal to create it, thus destroying free-markets and being your master.
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LoP Guest
lop guest
User ID: 507283
07-12-2019 01:26 AM

 



Post: #14
RE: Did you know banks create money when giving a loan?
LoP Guest  Wrote: (07-12-2019 12:07 AM)
Money must be created everyday. If banks didn't create it, how would more money be created?

Perhaps in the way that the Constitution states that money should be created??

You people really need to educate yourselves.
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LoP Guest
lop guest
User ID: 505244
07-12-2019 01:30 AM

 



Post: #15
RE: Did you know banks create money when giving a loan?
LoP Guest  Wrote: (07-12-2019 12:07 AM)
Money must be created everyday. If banks didn't create it, how would more money be created?

technically they don't create money. they create debt. and. when that debt is repaid the money basically vanishes. worse still. they only ever create the principle amount of a loan. so the interest has to be found within the principle pool; this creates artificial scarcity.

as for who or how more should be created... in the case of the U.S.

Quote: [...]The Constitution contains only two sections dealing with monetary issues. Section 8 permits Congress to coin money and to regulate its value. Section 10 denies states the right to coin or to print their own money. The framers clearly intended a national monetary system based on coin and for the power to regulate that system to rest only with the federal government. The delegates at the Constitutional convention rejected a clause that would have given Congress the authority to issue paper money. They also rejected a measure that would have specifically denied that ability to the federal government (Hammond, 92). Although the Constitution does not state that the federal government has the power to print paper currency, the Supreme Court in McCulloch vs Maryland (1819) ruled unanimously that the Second Bank of the United States and the banknotes it issued on behalf of the federal government were Constitutional.[...]

link
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