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mr freedom
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Joined: 17 Dec 2007
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 Posted: Tue Sep 23, 2008 11:01 pm Post subject: |
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I don't think commercial banks can engage in fractional banking, that just sounds too rediculous.
Central banks print money, or issue debt. That is their role, but that is not creating money, nor as far as I can see, is it fractional banking.
That the FED is a private bank does sound strange... |
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item7
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| Posted: Wed Sep 24, 2008 11:12 am Post subject: |
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| Commercial banks can and do engage in fractional reserve banking. For every pound they borrow they can lend (nowadays) up to ten pounds. It is a gigantic pyramid scam which inevitably crashes. Only central banks like the Federal Reserve or the Bank of England can "create" money however. These private cartels then charge interest on the money they invent which is how they end up owning everything. They trade money (a representation of wealth which can be invented effortlessly) for actual tangible wealth such as land/factories/roads etc. |
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mr freedom
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| Posted: Wed Sep 24, 2008 1:21 pm Post subject: |
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| item7 wrote: | | Commercial banks can and do engage in fractional reserve banking. For every pound they borrow they can lend (nowadays) up to ten pounds. It is a gigantic pyramid scam which inevitably crashes. Only central banks like the Federal Reserve or the Bank of England can "create" money however. These private cartels then charge interest on the money they invent which is how they end up owning everything. They trade money (a representation of wealth which can be invented effortlessly) for actual tangible wealth such as land/factories/roads etc. |
Thanks for the response Item7. Now, let me get this straight. You say "For every pound they borrow," but borrow from whom? Do you mean deposits, or money they borrow from the money market? |
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Disco_Destroyer
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| Posted: Wed Sep 24, 2008 4:30 pm Post subject: |
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The Bank Of England is privately owned isn't it?
I saw an inventory on the net dating to 70s I think that showed the Queen has a stake in it as well as a long list of others (if indeed its a real document)
_________________
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Leiff
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Joined: 23 May 2006
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| Posted: Wed Sep 24, 2008 5:24 pm Post subject: |
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| Quote: | Commercial banks borrow from the Bank of England in exactly the same way that individuals and businesses borrow from commercial banks.
Nationalising the Bank of England in 1946, which might seem at first sight to be a far reaching measure, made little difference in practice.
Yet, the state did acquire all the shares in the Bank of England -- they now belong to the Treasury and are held in trust by the Treasury Solicitor.
However, the government had no money to pay for the shares, so instead of receiving money for their shares, the shareholders were issued with government stocks. Although the state now received the operating profits of the bank, this was offset by the fact that the government now had to pay interest on the new stocks it had issued to pay for the shares. |
http://www.prosperityuk.com/prosperity/articles/boe1.html
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Disco_Destroyer
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Joined: 05 Sep 2006
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| Posted: Thu Sep 25, 2008 9:13 am Post subject: |
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| Leiff wrote: | | Quote: | Commercial banks borrow from the Bank of England in exactly the same way that individuals and businesses borrow from commercial banks.
Nationalising the Bank of England in 1946, which might seem at first sight to be a far reaching measure, made little difference in practice.
Yet, the state did acquire all the shares in the Bank of England -- they now belong to the Treasury and are held in trust by the Treasury Solicitor.
However, the government had no money to pay for the shares, so instead of receiving money for their shares, the shareholders were issued with government stocks. Although the state now received the operating profits of the bank, this was offset by the fact that the government now had to pay interest on the new stocks it had issued to pay for the shares. |
http://www.prosperityuk.com/prosperity/articles/boe1.html |
So can others buy the Government stocks if lets say they run into problems? I bet it does 
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Help, help, I'm being repressed!'
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mr freedom
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| Posted: Thu Sep 25, 2008 10:02 am Post subject: |
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| Disco_Destroyer wrote: | | So can others buy the Government stocks if lets say they run into problems? I bet it does |
If who runs into problems?
I think "Government stock" is just another name for government bonds or gilts, so anyone can buy them. |
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item7
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Joined: 20 Sep 2008
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| Posted: Thu Sep 25, 2008 10:19 am Post subject: |
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| mr freedom wrote: | | item7 wrote: | | Commercial banks can and do engage in fractional reserve banking. For every pound they borrow they can lend (nowadays) up to ten pounds. It is a gigantic pyramid scam which inevitably crashes. Only central banks like the Federal Reserve or the Bank of England can "create" money however. These private cartels then charge interest on the money they invent which is how they end up owning everything. They trade money (a representation of wealth which can be invented effortlessly) for actual tangible wealth such as land/factories/roads etc. |
Thanks for the response Item7. Now, let me get this straight. You say "For every pound they borrow," but borrow from whom? Do you mean deposits, or money they borrow from the money market? |
The Central Bank creates money from thin air (ie prints it or makes an entry in an account) then lends this to the commercial bank if it wants a loan - at interest!!!! Alternatively a bank can use savers money to lend out at an interest higher than they pay the saver thereby making a profit. I watched a Panorama programme this morning about the current problems and the Northern Rock had eight times as much money loaned out as it had held as savings. Fine as long as credit keeps on rolling but when it doesn't..... Most others were more sensible and had a ratio of about two times. The Northern Rock were obviously gambling big time but were mislead by the US Financial institutions who rated their poisonous subprime packages as "Triple A" when they were junk. Fraud on a gigantic scale which WE as taxpayers have to fund! Don't forget that the reason credit dried up was because Central banks pulled the plug and stopped lending. Deliberate engineered collapse. Now they buy everything of real wealth! |
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mr freedom
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| Posted: Thu Sep 25, 2008 10:49 am Post subject: |
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| item7 wrote: | | The Central Bank creates money from thin air (ie prints it or makes an entry in an account) then lends this to the commercial bank if it wants a loan - at interest!!!! Alternatively a bank can use savers money to lend out at an interest higher than they pay the saver thereby making a profit. |
Agreed. I think some posts here, and videos I've seen, suggest that commerical banks create money (has debt). I think we are agreed that this is not the case.
I don't think it is plausible to outlaw interest. Therefore central banks need to increase the money supply. Naturally, that "new money" will be lent at interest.
It is not clear to me that the system is at fault. However, it may be that those in control are abusing that system, but that is something else altogether. |
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conspiracy analyst
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Joined: 27 Sep 2005
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| Posted: Thu Sep 25, 2008 11:07 am Post subject: |
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The Destruction of Value... Grand Theft Paulson...
In a downward spiralling market value is destroyed. Already they are
talking about $68 trillion in debts in the hidden accounting parts of
the US banking system. Throwing money into the cauldron doesn't
actually solve the crisis as $700 billion is like pissing in the wind.
Why does value get destroyed and at such speed? Primarily because the
US economy is based on historical inertia. It was the world currency
underpinning the exchange of goods between nations. This survived long
after its decoupling from the dollar. By decoupling US corporations
from the US tax basis, the central goverment has no revenues exposing
the dollar to the full force of global contradictions. The only
'logical' course of action after Paulsons attempt at a financial coup
is for the USA to fragment and break apart. This will actually be a
progressive development as long ago the USA ceased in being a
progressive force, it is now a negative factor in world politcs
dragging the world down. Why should the whole world pay the price of a
sinking America.
Let it drown, let it sink. So the world can breathe... |
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mr freedom
Minor Poster
Joined: 17 Dec 2007
Posts: 53
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| Posted: Thu Sep 25, 2008 12:27 pm Post subject: |
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| conspiracy analyst wrote: | | ... they are talking about $68 trillion in debts in the hidden accounting parts of the US banking system. |
Who is?
| conspiracy analyst wrote: | Why does value get destroyed and at such speed? Primarily because the
US economy is based on historical inertia. It was the world currency
underpinning the exchange of goods between nations. This survived long
after its decoupling from the dollar. By decoupling US corporations
from the US tax basis, the central goverment has no revenues exposing
the dollar to the full force of global contradictions. The only
'logical' course of action after Paulsons attempt at a financial coup
is for the USA to fragment and break apart. This will actually be a
progressive development as long ago the USA ceased in being a
progressive force, it is now a negative factor in world politcs
dragging the world down. Why should the whole world pay the price of a
sinking America. |
What does that mean in plain language? |
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acrobat74
Trustworthy Freedom Fighter
Joined: 03 Jun 2007
Posts: 836
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| Posted: Thu Sep 25, 2008 6:23 pm Post subject: |
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| mr freedom wrote: | | I think some posts here, and videos I've seen, suggest that commerical banks create money |
They do.
Why do you think governments are eager to get the mortgage lenders to start extending loans again?
If they don't, the money (=debt) supply will contract, and foreclosures will start occurring at an alarming, politically uncomfortable rate.
| acrobat74 wrote: |
- In a fractional reserve banking world, the central bank regulates the the money supply, i.e. the total amount of money in the economy.
- This is important, as the only thing that gives value to our money is how much of it is in circulation.
- The central bank sets a target for the total money supply (i.e. it decides 'by how much' it wants to increase the money supply);
it then emits 'base money' to achieve this target;
this is an electronic / accounting entry only (i.e. 'money' is generated out of nothing) that creates a credit entry in the account of a commercial bank (e.g. via the purchase of government bonds by the central bank).
- Commercial banks then use this credit and, as per fractional reserve banking practices, give out loans with money generated out of thin air as interest-bearing debt, in the process generating 95-97% of the additional money supply.
- Money (i.e. today's fiat paper currency) = debt.
- All debt re-payments diminish the actual money supply (as they 'un-create' debts); hence, no debt = no money in the economy.
- If bank credit stops being injected into the economy (i.e. if commercial banks stop giving loans) a recession occurs, as it is mathematically impossible for all debtors to find the interest they need to re-pay in a shrinking money supply.
Hence, we have a system that is absolutely dependent on bank credit being perpetually injected into the economy, or else.
This, no doubt, is a bad system.
For some tech-y details see:
http://www.themoneymasters.com/faqs.htm
A more in-depth and technical paper ('Modern money mechanics') can be found here:
http://landru.myhome.net/monques/mmm2.html#MODERN
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http://www.themoneymasters.com/faqs.htm
| Quote: |
Question:
If private banks create over 90% of the US money supply, then are they not a greater threat to our democracy than the Fed itself?
Answer:
Of course.
The Fed was simply a smoke-screen designed to hide the stark reality that behind the Federal Reserve Act of 1913, signed by an unwitting President Wilson (who later deeply regretted that act) was a monumental power grab by the largest bankers who designed the Act at their secret meeting at Jekyll Island, Georgia (detailed in the video/DVD).
The Federal Reserve Act allowed the Fed to establish a reserve requirement of between only 8% and 14% (presently set at 10% for most types of loans).
That made it lawful for banks to loan far more than they had in deposits – to practice fractional reserve banking.
The Fed centralized, nationalized and standardized this fraud on the people, and restricted its practice to banks only.
In fact, the roughly 2% of the US money supply the Fed creates actually is owned by the government (as it should be), but this tiny fraction obscures the fact that it is the base for the creation of the other 98% created by private banks as loans.
Thus, simply having a Federal Reserve or similar national Central Bank, in itself, is not a bad thing (it can be a good thing) – but allowing private banks to practice fractional reserve banking (pursuant to the Federal Reserve Act of 1913 or any other such law) is the real problem, which is impoverishing all Americans and now all peoples worldwide, except the bankers.
For clarity, it should be renamed the Fractional Reserve Banking Act. The exponential concentration of wealth, in the US and abroad, is due almost exclusively to fractional reserve banking by privately owned banks such as Bank of America, Wells Fargo, Citigroup, J.P. Morgan Chase, etc. The Fed is simply part of the mechanism screening this grave injustice from public knowledge and scrutiny.
Question:
How do private banks create money?
Answer:
Focusing on the majority of the US money supply, the method is as follows:
The Federal Reserve Notes and equivalent Federal Reserve Deposits (mentioned above) are deposited in local banks or to their credit at one of the 12 Fed banks.
These funds serve as the base of bank loans, which require a 10% reserve.
For example, if $1,000,000 of Federal Reserve notes or Fed deposits are entered on the books with the Fed to the credit of a bank (usually the bank of the person or company which just sold the Fed a Treasury bond/bill or note), that bank may loan all of that money out (at interest), except for 10% which is kept as its reserve.
Thus $900,000 in this example may be loaned out by that bank.
In the usual case, the borrower of the $900,000 will not, of course, keep the money under the mattress, rather, it is deposited either in the same bank or in others.
This $900,000 in new deposits may then be loaned out at interest by these banks, except for the 10% reserve.
Thus $810,000 is loaned out a second time ($90,000 of the $900,000 being retained as reserves).
The newly loaned $810,000 is then deposited in these or other banks, allowing them to lend out $729,000 a third time (retaining 10% = $81,000 as reserves), and so on.
This process gets repeated over and over, each time the lending bank(s) retains 10%.
It takes a series of 66 loans to reduce the funds available for relending to less than $1,000 by retention of 10% each time as bank reserves.
In actual practice, due to numerous exceptions to the 10% reserve requirement, banks may lend the money even more times, resulting in even more money being created by them.
Thus, in our example, an original purchase by the Fed of $1,000,000 in Treasury bonds on the open market, by a series of deposits and loans in one or more banks, results in an expansion of the US money supply (via bank accounts simply created as loans by the lending banks) by a factor of 10x.
After the process is completed, the total money in the US economy has been expanded by ten million dollars ($10,000,000), in this example.
The Fed got to create 10% of this total, and private banks the other 90%, to lend at interest.
In each individual bond purchase by the Fed, not just one bank profits from this scheme, rather the banking system as a whole does.
However, in practice, the 4 largest international banks get roughly 80% of the profit, leaving the crumbs (still million$) to the smaller banks in your community.
What did the banks do to obtain this right to lend, relend, and relend again and again the same money (less 10% reserved each time)?
Nothing, except lobby and mislead the public, the majority of Congress and President Wilson to think they were supporting legislation to reform banking to a more just form under the Federal Reserve Act of 1913.
They continue to hide, obfuscate and mislead the public, to the same purpose, using media they purchased for this purpose, and corrupting the political system in the process. |
Money as debt:
http://video.google.com/videoplay?docid=-9050474362583451279
_________________
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Off the TV: http://www.youtube.com/watch?v=M4szU19bQVE
Those who do not think that employment is systemic slavery are either blind or employed. (Nassim Taleb)
www.moneyasdebt.net
http://www.positivemoney.org.uk/ |
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conspiracy analyst
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Joined: 27 Sep 2005
Posts: 2279
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| Posted: Thu Sep 25, 2008 7:03 pm Post subject: |
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| mr freedom wrote: | | conspiracy analyst wrote: | | ... they are talking about $68 trillion in debts in the hidden accounting parts of the US banking system. |
Who is?
| conspiracy analyst wrote: | Why does value get destroyed and at such speed? Primarily because the
US economy is based on historical inertia. It was the world currency
underpinning the exchange of goods between nations. This survived long
after its decoupling from the dollar. By decoupling US corporations
from the US tax basis, the central goverment has no revenues exposing
the dollar to the full force of global contradictions. The only
'logical' course of action after Paulsons attempt at a financial coup
is for the USA to fragment and break apart. This will actually be a
progressive development as long ago the USA ceased in being a
progressive force, it is now a negative factor in world politcs
dragging the world down. Why should the whole world pay the price of a
sinking America. |
What does that mean in plain language? |
Paul Mason on Newsnight quoted a figure of $68 trillion in hidden accounting parts of the US banking system, nearly 7 times the US national debt which stands at $11 trillion.
After WW2 with the $ became the worlds currency underpining the exchange of goods between countries so for instance oil bought and sold was measure in $. This now is the system that is coming unstuck.
In the 1960's you couldn't pring dollars unless you had the same amount in gold bars in your vaults. By abolishing this link the dollar became a defacto unchecked currency whereby the central govt could print money at whim. This worked insofar as the whole world was catching up with the US in development and until US companies existed within the borders of the USA. When they became footloose they took their tax dollars with them and the goverment was unable to collect as much revenue, wages fell to minimum wage and one default after another started to kick in.
Giving money to a bankrupt without sorting out the root cause of bankruptcies ie low paying jobs doesn't solve the problem, it makes it worse. Its like giving alcohol to an alcoholic and praying he will stop. He wont. US banks are the alcoholics of the world monetary system spending money like a drunken sailor and getting involved in wars the world over. This has to stop. And stop it will in the most dramatic way. |
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mr freedom
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Joined: 17 Dec 2007
Posts: 53
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| Posted: Thu Sep 25, 2008 7:11 pm Post subject: |
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Thanks acrobat, but I find your reply ambiguous. Let us try to keep things simple!
This is my understanding. A commerical bank, can lend money that it has on deposit, or money that it has borrowed from the market. This is not creating money.
I think you are saying that a commercial bank can borrow from the FED, and lend that money out at interest? |
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ian neal
Angel - now passed away
Joined: 26 Jul 2005
Posts: 3140
Location: UK
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| Posted: Thu Sep 25, 2008 7:39 pm Post subject: |
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| A commerical bank can lend money 10 to 15 X what it has on deposit, it called fractional reserve lending |
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mr freedom
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Posts: 53
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| Posted: Thu Sep 25, 2008 7:47 pm Post subject: |
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| ian neal wrote: | | A commerical bank can lend money 10 to 15 X what it has on deposit, it called fractional reserve lending |
Where do they get the money from ian, do they borrow it themselves, or "create it"? |
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Leiff
Trustworthy Freedom Fighter
Joined: 23 May 2006
Posts: 509
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| Posted: Thu Sep 25, 2008 8:59 pm Post subject: |
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| Quote: | How BANKS CREATE MONEY for PRIVATE & COMMERCIAL Needs
If a bank makes a loan, nothing is lent, for the simple reason that there is nothing of substance to lend. The bank makes what it terms a loan against the amount of money deposited with it at that time. This is all done with the utmost ease. The bank has simply to agree that a person may take out a loan of, say, £5,000. The person taking out the loan can then spend £5,000 and hey presto! £5,000 of new number-money has been created. No one with a bank account is sent a letter telling them that the money in their account is temporarily unavailable, because it has been lent to someone else. None of the original accounts in the bank has been touched, reduced or affected. Nobody else's spending power has been reduced, but £5,000 of new spending power has been created; £5,000 of new number-money enters the economy at the stroke of a bank managers pen, but £5,000 of debt has also been created.
Thus, whoever takes out the loan will then make purchases and payments to other people, who will pay that new money into their bank accounts. Result: more bank deposits! As soon as the loan in the example above is spent, £5,000 will find its way into the bank account of a car dealer or DIY store; £5,000 of apparently new money. This is money which has supposedly been loaned but the banking system doesn't distinguish this fact. It simply registers a new deposit, and regards it as new money. Total deposits in the banking system have therefore increased by £5,000. This is the boomerang effect of a bank loan by which a loan rapidly creates an equivalent amount of new bank deposits in the banking system. This effect was neatly summarised in a statement by Graham Towers, former Governor of the Central Bank of Canada.... "Each and every time a bank makes a loan, new bank credit is created -- new deposits -- brand new money."
The new money will provide the banking system with the collateral for more lending. This is the bolstering effect of a bank loan. As the total money held by banks and building societies becomes swollen by loans returning as new deposits this provides them with the basis for further loans.
Perhaps the best description of this process of money creation was provided by H.D. Macleod : "When it is said that a great London joint stock bank has perhaps £50,000,000 of deposits, it is almost universally believed that it has £50,000,000 of actual money to lend out as it is erroneously called... It is a complete and utter delusion. These deposits are not deposits in cash at all, they are nothing but an enormous superstructure of credit."
The Grip of Death, Jon Carpenter Publishing, 1998, pp. 11-13. |
http://www.prosperityuk.com/prosperity/articles/moneymake.html
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"Democracy is sustained not by public trust but by public scepticism"
George Monbiot |
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mr freedom
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Joined: 17 Dec 2007
Posts: 53
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| Posted: Thu Sep 25, 2008 9:51 pm Post subject: |
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No I don't think that is correct Leiff. A commercial bank borrows the money it lends, as Northern Rock did. Northern Rock were not just "creating money".
Currently, banks are unwilling to lend to each other, and this we are told is a big problem. Why then do they not just "create" some of this "new money" of which you speak? |
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Leiff
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Joined: 23 May 2006
Posts: 509
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| Posted: Thu Sep 25, 2008 10:24 pm Post subject: |
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| mr freedom wrote: | | Why then do they not just "create" some of this "new money" of which you speak? |
Could it be that the crisis is being orchestrated? (again)
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"Democracy is sustained not by public trust but by public scepticism"
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mr freedom
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Joined: 17 Dec 2007
Posts: 53
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| Posted: Thu Sep 25, 2008 10:33 pm Post subject: |
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| Leiff wrote: | | mr freedom wrote: | | Why then do they not just "create" some of this "new money" of which you speak? |
Could it be that the crisis is being orchestrated? (again) |
That does not address the question. Unless you are you suggesting that the commercial banks could save themselves by "creating" some of their "new money"? |
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Leiff
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Joined: 23 May 2006
Posts: 509
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| Posted: Thu Sep 25, 2008 10:40 pm Post subject: |
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| Graham Towers, former Governor of the Central Bank of Canada wrote: | | Each and every time a bank makes a loan, new bank credit is created -- new deposits -- brand new money. |
_________________
"Democracy is sustained not by public trust but by public scepticism"
George Monbiot |
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mr freedom
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Joined: 17 Dec 2007
Posts: 53
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| Posted: Thu Sep 25, 2008 10:51 pm Post subject: |
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| Leiff wrote: | | Graham Towers, former Governor of the Central Bank of Canada wrote: | | Each and every time a bank makes a loan, new bank credit is created -- new deposits -- brand new money. |
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Yes, but the original source of this new money is the central bank. If commericial banks could create money, they would do nothing else! |
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acrobat74
Trustworthy Freedom Fighter
Joined: 03 Jun 2007
Posts: 836
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| Posted: Fri Sep 26, 2008 7:00 am Post subject: |
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| mr freedom wrote: | | Leiff wrote: | | Graham Towers, former Governor of the Central Bank of Canada wrote: | | Each and every time a bank makes a loan, new bank credit is created -- new deposits -- brand new money. |
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Yes, but the original source of this new money is the central bank. If commericial banks could create money, they would do nothing else! |
You've misunderstood the concept it seems.
Commercial banks can't create as much new money they want at will.
There has been a load of posts and films in this thread that explain the process.
And yes, if you actually want to understand it you need to take the time and put in the effort to do so. Otherwise we'll keep going in circles repeating the same questions.
So, again:
| acrobat74 wrote: |
- In a fractional reserve banking world, the central bank regulates the the money supply, i.e. the total amount of money in the economy.
- This is important, as the only thing that gives value to our money is how much of it is in circulation.
- The central bank sets a target for the total money supply (i.e. it decides 'by how much' it wants to increase the money supply);
it then emits 'base money' to achieve this target;
this is an electronic / accounting entry only (i.e. 'money' is generated out of nothing) that creates a credit entry in the account of a commercial bank (e.g. via the purchase of government bonds by the central bank).
- Commercial banks then use this credit and, as per fractional reserve banking practices, give out loans with money generated out of thin air as interest-bearing debt, in the process generating 95-97% of the additional money supply.
|
Additional points:
- The 'base' money that the central bank emits is the same as the 'high-powered' money that is mentioned in the 'Money as debt' film.
This money represents deposits of commercial banks with the central bank.
Note that when the central bank wants to inflate the money supply to achieve its monetary target, it simply creates this deposit for a commercial bank:
| Quote: |
this is an electronic / accounting entry only (i.e. 'money' is generated out of nothing) that creates a credit entry in the account of a commercial bank (e.g. via the purchase of government bonds -owned by the commercial bank- by the central bank). |
- Commercial banks create money as per fractional reserve banking.
With regards to how much money they can create, they are restricted by the fractional reserve requirements.
For every £10 on deposit, they can create £9 of new loans.
This is a 10% fractional reserve requirement (£1 of £10 is held as reserve, the rest can be loaned out at interest).
The important thing to understand here is that the 'deposits' represent 'debt money' that has also been created as part of this process.
Do read and understand this:
| Quote: |
For example, if $1,000,000 of Fed deposits are entered on the Fed books to the credit of a bank, that bank may loan all of that money out at interest, except for 10% which is kept as its reserve.
Thus $900,000 in this example may be loaned out by that bank.
In the usual case, the borrower of the $900,000 will not, of course, keep the money under the mattress, rather, it is deposited either in the same bank or in others.
This $900,000 in new deposits may then be loaned out at interest by these banks, except for the 10% reserve.
Thus $810,000 is loaned out a second time ($90,000 of the $900,000 being retained as reserves).
The newly loaned $810,000 is then deposited in these or other banks, allowing them to lend out $729,000 a third time (retaining 10% = $81,000 as reserves), and so on.
This process gets repeated over and over, each time the lending bank(s) retains 10%.
It takes a series of 66 loans to reduce the funds available for relending to less than $1,000 by retention of 10% each time as bank reserves.
In actual practice, due to numerous exceptions to the 10% reserve requirement, banks may lend the money even more times, resulting in even more money being created by them.
Thus, in our example, an original purchase by the Fed of $1,000,000 in Treasury bonds on the open market, by a series of deposits and loans in one or more banks, results in an expansion of the US money supply (via bank accounts simply created as loans by the lending banks) by a factor of 10x.
After the process is completed, the total money in the US economy has been expanded by ten million dollars ($10,000,000), in this example.
The Fed got to create 10% of this total, and private banks the other 90%, to lend at interest. |
You've brought up Northern Rock. My understanding is that this bank depended for its 'deposits' (that would enable it to extend new loans) on the wholesale money markets between banks: in essence it borrowed from other banks to be able to lend.
Once banks grew increasingly concerned about counter-party risk and about lending to each other, this caused the rates in this inter-bank market to rise.
It's easy to see how banks that relied more heavily on this sort of financing could be affected.
If you think this was a very vulnerable business model, you're not alone. Evidently, the markets agreed with you.
_________________
Summary of 9/11 scepticism: http://tinyurl.com/27ngaw6 and www.911summary.com
Off the TV: http://www.youtube.com/watch?v=M4szU19bQVE
Those who do not think that employment is systemic slavery are either blind or employed. (Nassim Taleb)
www.moneyasdebt.net
http://www.positivemoney.org.uk/ |
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mr freedom
Minor Poster
Joined: 17 Dec 2007
Posts: 53
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| Posted: Fri Sep 26, 2008 9:42 am Post subject: |
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| acrobat74 wrote: | | Commercial banks can't create as much new money they want at will. |
With your previous posts in mind, I will assume that was a typo? Did you mean "can"?
| acrobat74 wrote: | | You've misunderstood the concept it seems. |
That may be the case acrobat. However, your failure to explain this concept in simple terms and plain language suggests that either you do not understand it, or you do not posess that skill. A very smart man once said to me, "there are no stupid questions, only clever answers."
| acrobat74 wrote: | | For example, if $1,000,000 of Fed deposits are entered on the Fed books to the credit of a bank, that bank may loan all of that money out at interest, except for 10% which is kept as its reserve. |
That sounds like a loan to me; the bank is lending money they have borrowed, that is not creating money.
| acrobat74 wrote: | | You've brought up Northern Rock. My understanding is that this bank depended for its 'deposits' (that would enable it to extend new loans) on the wholesale money markets between banks: in essence it borrowed from other banks to be able to lend. |
Why would Northern Rock borrow money from the market if they could "create new money"? Why, when they got into trouble did they not just "create new money"?
Washington Mutual (WaMu) has been closed and sold by its regulator, making it the biggest US bank to fail. The Office of Thrift Supervision (OTS) said it was worried WaMu would run out of cash as $16.7bn of deposits had been withdrawn since 15 September.
http://news.bbc.co.uk/1/hi/business/7637026.stm
Why did the Washington Mutual not just "create" some "new money"?
Last edited by mr freedom on Fri Sep 26, 2008 12:08 pm; edited 1 time in total |
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truthseeker john
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Joined: 02 Oct 2006
Posts: 577
Location: Yorkshire
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| Posted: Fri Sep 26, 2008 10:55 am Post subject: |
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| mr freedom wrote: | | Why would Northern Rock borrow money from the market if they could "create new money"? Why, when they got into trouble did they not just "create new money"? |
It seems to me that there are rules and there has to be ‘legitimate’ reasons to "create new money" - then I gather that Northern Rock are not at the top of the pecking order anyway. My focus has been on other things so I haven’t taken much interest in money but I realised a while ago that for those who have lots of it, money is a game that involves juggling numbers and ripping people off. The money system is a scam and the joke is on us and while they play with imaginary money, we ordinary people pay for it with the quality of our lives.
_________________
"Talk sense to a fool and he calls you foolish." - Euripides
"No problem can be solved from the same level of consciousness that created it." - Albert Einstein
"To find yourself, think for yourself" - Socrates |
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item7
Moderate Poster
Joined: 20 Sep 2008
Posts: 641
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| Posted: Fri Sep 26, 2008 12:33 pm Post subject: |
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| mr freedom wrote: | No I don't think that is correct Leiff. A commercial bank borrows the money it lends, as Northern Rock did. Northern Rock were not just "creating money".
Currently, banks are unwilling to lend to each other, and this we are told is a big problem. Why then do they not just "create" some of this "new money" of which you speak? |
A commercial bank does not just lend the same amount of money it borrows. It lends a multiple of it and in the case of Northern Rock this was about eight times what it held. You are failing to see the pyramid scam in this Fractional Reserve system. When people start to default on their loans the system collapses. It is the case that Northern Rock effectively created money in the form of Debt. Say they held one million pounds, borrowed from the Central Bank. They then gave mortgages to the tune of eight million pounds meaning people were paying back eight million pounds of debt when only one million pounds was borrowed from the Central bank, which created it out of thin air. So seven million pounds of "money as debt" existed. Northern Rock then speculated on sub-prime loans which bombed leaving Northern Rock with a LOT less money than it needed to keep operating and the Central Banks STOPPED lending money. The Credit tap was turned off just when Banks got themselves over their heads in speculating on the failing property market. I know this is a complicated scenario but the root of the issue is that PRIVATE CENTRAL BANKS CONTROL THE CREATION OF MONEY and this should be a function of GOVERNMENT!!!! |
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mr freedom
Minor Poster
Joined: 17 Dec 2007
Posts: 53
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| Posted: Fri Sep 26, 2008 1:18 pm Post subject: |
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Thank you for the reply item7, written in simple language 
| item7 wrote: |
A commercial bank does not just lend the same amount of money it borrows. It lends a multiple of it and in the case of Northern Rock this was about eight times what it held. |
The last word here is "held", do mean deposits AND borrowings? If so, can you provide a source for this information? If you can, then I will be able to...
| item7 wrote: | | ... see the pyramid scam in this Fractional Reserve system. |
At the moment, I don't think this is correct... I think Northern rock perhaps loaned 8 times their assets/deposits, but they had to borrow ALL of this money. I found this from Channel 4 news http://www.channel4.com/news/articles/business_money/the%20northern%20 rock%20bank%20run/802462
only a tiny proportion of the money Northern Rock lends comes from its savers. Instead it's turned to the money markets - borrowing from other banks and financial institutions at market rates. For years this business model has allowed Northern Rock to borrow cheaply - and in turn offer cheap mortgages...
I can find no suggestion here or elsewhere, of what you and others describe as Fractional Reserve Banking. In short, I find no evidence that banks can lend money that they do not have, either as assets/deposits, or from loans. |
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acrobat74
Trustworthy Freedom Fighter
Joined: 03 Jun 2007
Posts: 836
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| Posted: Fri Sep 26, 2008 3:58 pm Post subject: |
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| mr freedom wrote: | | I can find no suggestion here or elsewhere, of what you and others describe as Fractional Reserve Banking. In short, I find no evidence that banks can lend money that they do not have, either as assets/deposits, or from loans. |
Lol...
That's probably because you're bent on plastering your imaginary theories all over this thread.
You insist to not read and comprehend the information that is provided to you.
What's more, you seem to want to spin some imaginary tale about how fractional reserve banking works.
I'll leave it to the readers to determine whether your tactics are those of a genuine truth-seeker...or those of a propagandist.
By the way, you haven't tried Wikipedia in your search for truth & knowledge have you?
http://en.wikipedia.org/wiki/Fractional-reserve_banking
| Quote: |
How fractional reserve banking works:
A demand deposit at a bank (e.g. checking account) or banknote issued by a bank (bank-issued paper money) is essentially a loan to the bank, repayable on demand, which the bank uses to finance its investments in loans and interest bearing securities.
The nature of fractional-reserve banking is that there is only a fraction of cash reserves available at the bank needed to repay all of the demand deposits and banknotes issued.
The reason people deposit funds at a bank or hold banknotes issued by a bank is to store savings in the form of a demand claim on the bank.
One important aspect of fractional-reserve banking is that the note holders and depositors still have a claim to repayment of their funds on demand even though the funds are already largely invested by the bank in interest bearing loans and securities.[5]
For instance, you could ask to withdraw all the money in your checking account at any time. If all the depositors of a bank did that at the same time (a bank run), the bank could be in trouble, though this rarely happens.
However, the Northern Rock crisis of 2007 in the United Kingdom is an example of such an event.
Fractional-reserve banking works because:
1. Over any typical period of time, redemption demands are largely or wholly offset by new deposits or issues of notes. The bank thus needs only to satisfy the excess amount of redemptions.
2. Only a minority of people will actually choose to withdraw their demand deposits or present their notes for payment at any given time.
3. People usually keep their funds in the bank for a prolonged period of time.
4. There are usually enough cash reserves in the bank to handle net redemptions.
If the net redemption demands are unusually large, the bank will run low on reserves and will be forced to raise new funds from additional borrowings (e.g. by borrowing from the money market or using lines of credit held with other banks), and/or sell assets, to avoid running out of reserves and defaulting on its obligations.
If creditors are afraid that the bank is running out of cash, they have an incentive to redeem their deposits as soon as possible, triggering a bank run.
Money creation
The process of fractional-reserve banking has a cumulative effect of money creation by banks.[4] In short, there are two types of money in a fractional-reserve banking system:[6][7][8]
1. central bank money (physical currency such as coins and paper money)
2. commercial bank money (money created through loans) - sometimes referred to as checkbook money[9]
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And again:
| acrobat74 wrote: |
Commercial banks can't create as much new money they want at will.
There has been a load of posts and films in this thread that explain the process.
And yes, if you actually want to understand it you need to take the time and put in the effort to do so. Otherwise we'll keep going in circles repeating the same questions.
So, again:
| acrobat74 wrote: |
- In a fractional reserve banking world, the central bank regulates the the money supply, i.e. the total amount of money in the economy.
- This is important, as the only thing that gives value to our money is how much of it is in circulation.
- The central bank sets a target for the total money supply (i.e. it decides 'by how much' it wants to increase the money supply);
it then emits 'base money' to achieve this target;
this is an electronic / accounting entry only (i.e. 'money' is generated out of nothing) that creates a credit entry in the account of a commercial bank (e.g. via the purchase of government bonds by the central bank).
- Commercial banks then use this credit and, as per fractional reserve banking practices, give out loans with money generated out of thin air as interest-bearing debt, in the process generating 95-97% of the additional money supply.
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Additional points:
- The 'base' money that the central bank emits is the same as the 'high-powered' money that is mentioned in the 'Money as debt' film.
This money represents deposits of commercial banks with the central bank.
Note that when the central bank wants to inflate the money supply to achieve its monetary target, it simply creates this deposit for a commercial bank:
| Quote: |
this is an electronic / accounting entry only (i.e. 'money' is generated out of nothing) that creates a credit entry in the account of a commercial bank (e.g. via the purchase of government bonds -owned by the commercial bank- by the central bank). |
- Commercial banks create money as per fractional reserve banking.
With regards to how much money they can create, they are restricted by the fractional reserve requirements.
For every £10 on deposit, they can create £9 of new loans.
This is a 10% fractional reserve requirement (£1 of £10 is held as reserve, the rest can be loaned out at interest).
The important thing to understand here is that the 'deposits' represent 'debt money' that has also been created as part of this process.
Do read and understand this:
| Quote: |
For example, if $1,000,000 of Fed deposits are entered on the Fed books to the credit of a bank, that bank may loan all of that money out at interest, except for 10% which is kept as its reserve.
Thus $900,000 in this example may be loaned out by that bank.
In the usual case, the borrower of the $900,000 will not, of course, keep the money under the mattress, rather, it is deposited either in the same bank or in others.
This $900,000 in new deposits may then be loaned out at interest by these banks, except for the 10% reserve.
Thus $810,000 is loaned out a second time ($90,000 of the $900,000 being retained as reserves).
The newly loaned $810,000 is then deposited in these or other banks, allowing them to lend out $729,000 a third time (retaining 10% = $81,000 as reserves), and so on.
This process gets repeated over and over, each time the lending bank(s) retains 10%.
It takes a series of 66 loans to reduce the funds available for relending to less than $1,000 by retention of 10% each time as bank reserves.
In actual practice, due to numerous exceptions to the 10% reserve requirement, banks may lend the money even more times, resulting in even more money being created by them.
Thus, in our example, an original purchase by the Fed of $1,000,000 in Treasury bonds on the open market, by a series of deposits and loans in one or more banks, results in an expansion of the US money supply (via bank accounts simply created as loans by the lending banks) by a factor of 10x.
After the process is completed, the total money in the US economy has been expanded by ten million dollars ($10,000,000), in this example.
The Fed got to create 10% of this total, and private banks the other 90%, to lend at interest. |
You've brought up Northern Rock. My understanding is that this bank depended for its 'deposits' (that would enable it to extend new loans) on the wholesale money markets between banks: in essence it borrowed from other banks to be able to lend.
Once banks grew increasingly concerned about counter-party risk and about lending to each other, this caused the rates in this inter-bank market to rise.
It's easy to see how banks that relied more heavily on this sort of financing could be affected.
If you think this was a very vulnerable business model, you're not alone. Evidently, the markets agreed with you. |
_________________
Summary of 9/11 scepticism: http://tinyurl.com/27ngaw6 and www.911summary.com
Off the TV: http://www.youtube.com/watch?v=M4szU19bQVE
Those who do not think that employment is systemic slavery are either blind or employed. (Nassim Taleb)
www.moneyasdebt.net
http://www.positivemoney.org.uk/
Last edited by acrobat74 on Sat Sep 27, 2008 11:51 am; edited 1 time in total |
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item7
Moderate Poster
Joined: 20 Sep 2008
Posts: 641
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| Posted: Sat Sep 27, 2008 10:22 am Post subject: |
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| mr freedom wrote: | | The last word here is "held", do mean deposits AND borrowings? If so, can you provide a source for this information? If you can, then I will be able to... |
Yes I mean the money they hold in both deposits and loans. They are both the same if you think about it, as the Northern Rock has to pay interest on both and of course has ultimately to repay them. You want a source??? Do a search on fractional reserve banking and read it for yourself. Watch the recent Panorama program which examined the Northern Rock fiasco. It is hardly a secret that banks lend far more than they actually possess. I think you are teasing everyone on this thread mr freedom.
By the way - the sub-prime loans are just a tiny percent of the current financial meltdown. Most of the problems come from "Derivatives" which are themselves a product of de-regulation and this whole thing goes back to the Thatcher/Reagan years when the Banksters were let loose. As if unregulated Markets and "greed is good" was ever really going to get us anywhere else but to financial armageddon. Fraud on a scale unimagined has been committed and the wealth of the Uk and USA has been looted by a relative handful of people. You ain't seen nuthin' yet!! |
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mr freedom
Minor Poster
Joined: 17 Dec 2007
Posts: 53
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| Posted: Sat Sep 27, 2008 5:06 pm Post subject: |
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| item7 wrote: | I think you are teasing everyone on this thread mr freedom.
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No, I'm just trying to tie down what is actually mean by "money scam" and "banking conspiracy" and so on. It appears to me that fractional reserve banking is nothing more than banks borrowing money (at interest) to lend (at interest). I don't see a scam in that.
I thought "the banking conspiracy" centred more on the mysterious ownership of the FED, rather than the activity of commercial banks.
Perhaps it would be useful to discuss/suggest alternatives to the current system. It would be a shame if the tone of this interesting thread descended further. |
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