Posted on 06/25/2011 10:50:30 AM PDT by Nanomaker
Good idea .. maybe you will “higher” me to edit your posts, and than I will have a “hire” salary? Robert Bonomo
From the horses mouth (The Dallas Fed)
“Banks actually create money when they lend it”
http://dallasfed.org/educate/everyday/ev9.html
Nonsense? If you are correct, then bank reserve requirements are 100% and bank leverage is 0....?? How does money supply increase? Why do we have inflation? Commercial banks create money. They create it when they lend it. The explanation given in Wikipedia and even on the Dallas Fed site, while getting the main idea across, is intellectually dishonest. Banks don’t lend deposits. Modern banks are not money agents, they are ‘creators’ of money.
“Banks actually create money when they lend it”
http://dallasfed.org/educate/everyday/ev9.html
This is a very important point. Nothing appeared “magically”. Remember, what is money, modern money? Modern money is debt. There is a house, there is a man with an IOU. If you agree that those two things exist, all the banks does is take possession of the IOU in exchange for Federal Reserve Notes, (check, cash, transfer doesn’t matter)which are given to the the owner of the house in exchange for the deed.
IOU = Money They are one in the same.
Why can't people discuss issues without resorting to name calling? If someone says something you don't agree with, they are a Commie or a Marxist. How should I respond to you? Should I try and think of a really nasty name, and so on and so on? Where does it get us?
You don't think I have the credentials to support Ron Paul? You maybe right. But, for instance, I wrote this article, which has generated thousands of visits to my site, www.thecactusland.com, which has videos and interviews with Dr. Paul. I believe, maybe mistakenly, that this article is directly supportive of Dr. Paul and Austrian thinking. If I am mistaken, point out where if you are a true supporter of Dr. Paul and want to see him elected.
Now I want to challenge you to something, you say money is not labor, give me an example of money (except of course from a bank) where money is not a result of labor (if you find that term offensive, we can use work).
Hi Nanomaker,
Thanks so much for posting my article here and for your kind words. A very interesting and lively discussion. The mystery of money is crucial to understanding how things work. When we all get this, many, many things will change for the better. When THEY have to bust their tails to get money to pay for stuff just like we do, the game is over, we win.
High! How hie of a salary do you knead?
You are the only one on this thread who knows what you are talking about.
I learned about the multiplier effect in macroeconomics — circa sophomore year of college. The professor started out with a story that went something like this:
Say your crazy uncle has been saving his money all his life, and finally decides to take his $10,000 from under the mattress and deposit it in a bank. The bank can now loan out approximately $100,000, based on that 10K deposit. And poof! money has been created.
The story was longer than that (you know, M1, M2, M3, etc.), but you and the other thread readers get the idea. It really is that simple.
I wish more people knew about the multiplier.
No...Jill exchanged one asset (the house) for another asset (cash)...net change from her perspective: zero. Jack has a $100K liability, but that’s offset by a $100K asset (the house). Net change: zero. The bank has a new asset (the $100K note), but issued a check (a $100K liability) to acquire the asset, net change: zero.
Not exactly the way they carried it on their books, as they borrowed the money from the fed to pay Jill...Needless to say, they all were jacking up assets. I understand what you are saying about the intent of the parties, but where it gets fuzzy is how they do their books..Hence a housing crunch out of nowhere.
Actually, take a small bank for example - they can only lend all of their equity (capital), except around 6% to maintain as a reserve - so when they are first opened they lend that portion of the equity ASAP to create maximum revenue (assets) - secondly, they generate deposits and lend those deposits while maintaining the same 6% equity capital ratio to assets. As deposits grow it’s often necessary to secure additional capital to maintain the minimum 6% and to continue lending.
No new money is involved, except as suppose new deposits can be classified as new money to some people, but it did come from some place. Also, banks can secure now money from the Fed - fed window, FHLB, etc. and often do - but only for emergencies or to secure long term loans.
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