[MonteQuest]

$this->bbcode_second_pass_quote('MrBill', ' ')So please. Don't tell me fairytales about the creation of money and fractional banking when you really mean the expansion of credit and the money multiplier effect.

[joewp]

$this->bbcode_second_pass_quote('Yvan', '')$this->bbcode_second_pass_quote('joewp', 'Y')ep, they "create" money out of nothing. You deposit $100 then the bank loans out $900 based on the reserve you've given them, and they count the loan paper as an "asset" to offset the "liabilities" of those new dollars in demand deposit accounts they just created.

[Bas]

so it's much like when I lend 20 bucks to my next door neighbor and he goes on spending it and his promise to me that he'll pay it back in a couple of days is money creation?

[MacG]

$this->bbcode_second_pass_quote('Bas', '')$this->bbcode_second_pass_quote('firestarter', '')$this->bbcode_second_pass_quote('Bas', 'y')ou mean what joewp says, right, MacG? it's a huge difference, yanno

[Yvan]

In fact the money is not created by the bank it is created by the depositor. If deposits were elaborated as true loans to the bank (principal paid at maturity) instead of being redeemable at any time there would be no money creation.

[Bas]

the point is, that the video suggests that the banking system goes from 100$ to a 900$ new loan directly which is a lie. They make a new loan of 90$ and if that get's disposited, they can make a loan of 81$, theoretically ending up at 900$ if every penny is disposited. Thing is, after reaching that 900$ they won't be able to expand any further; a whole lot different from the exponentially growing money supply as suggested by the documentary. Such a system would blow itself up within no time.

[joewp]

$this->bbcode_second_pass_quote('Bas', 's')o it's much like when I lend 20 bucks to my next door neighbor and he goes on spending it and his promise to me that he'll pay it back in a couple of days is money creation?

[Bas]

it was a rhetorical question, joewp. And my neighbor would end up with a black eye, not me. The point his, his promise to pay me back is worth 20$, he can go on and lend it to a friend of his and that would be another promise of 20$ without reserve requirements.

[MacG]

$this->bbcode_second_pass_quote('Bas', 'S')uch a system would blow itself up within no time.

[Bas]

you still think that a bank with a 100$ deposits can instantly supply you with a loan of 900$, don't you MacG?

Aside from that, bankruns are always a risk and I'm sure we'll see a couple of those when PO hits.

[Yvan]

joewp, you said that a bank that receive $100 in deposit can loan $900. This is indisputably wrong. Reread you post.

[mmasters]

$this->bbcode_second_pass_quote('Yvan', '')$this->bbcode_second_pass_quote('joewp', 'Y')ep, they "create" money out of nothing. You deposit $100 then the bank loans out $900 based on the reserve you've given them, and they count the loan paper as an "asset" to offset the "liabilities" of those new dollars in demand deposit accounts they just created.

[joewp]

Can we stick a fork in this now?
$this->bbcode_second_pass_quote('The Federal Reserve Bank of New York(June 2006)', '
')Reserve Requirements and Money Creation
Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000). In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of $500 ($100+$80+$64+$51.20+...=$500). Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity.

In practice, the connection between reserve requirements and money creation is not nearly as strong as the exercise above would suggest. Reserve requirements apply only to transaction accounts, which are components of M1, a narrowly defined measure of money. Deposits that are components of M2 and M3 (but not M1), such as savings accounts and time deposits, have no reserve requirements and therefore can expand without regard to reserve levels. Furthermore, the Federal Reserve operates in a way that permits banks to acquire the reserves they need to meet their requirements from the money market, so long as they are willing to pay the prevailing price (the federal funds rate) for borrowed reserves. Consequently, reserve requirements currently play a relatively limited role in money creation in the United States.

[Ayame]

$this->bbcode_second_pass_quote('joewp', ' ')Feeling scammed yet?

[mmasters]

$this->bbcode_second_pass_quote('joewp', '
')Boy, you guys are thick. Read again what the Fed says:
$this->bbcode_second_pass_quote('', 'B')y making loans commercial banks increase their liabilities
(demand deposits ) and assets (loans ) , and in a
sense “create” money...

[MacG]

$this->bbcode_second_pass_quote('Bas', 'y')ou still think that a bank with a 100$ deposits can instantly supply you with a loan of 900$, don't you MacG?

Aside from that, bankruns are always a risk and I'm sure we'll see a couple of those when PO hits.

[Yvan]

Money creation is based on deposits and deposits are not nothing. The money multiplier is 1/(RR+CR), where RR is the reserve ratio and CR the cash ratio. Even if you remove RR the infinite geometric series cannot go to infinity. If a bank was able to create as many loans as it wants and earn interest on them the inflation would be infinite. Never heard of open-market operations?

No magic or conspiracy there.

[mmasters]

$this->bbcode_second_pass_quote('Yvan', 'M')oney creation is based on deposits and deposits are not nothing.

[Yvan]

Debt is not an asset? Debt has no value? If you were holding a government or corporate bond would you hand it over to me for free?

$this->bbcode_second_pass_quote('', 'H')ow do you like the fact that when you go to the bank for a loan the money is manufactured for your loan based off another loan, essentially out of nothing? and if you can't pay it up with the way the bankruptcy laws are going you could potentially go to debters prison? The bank created this new money the instant you took the loan and now you could potentially go to prison if you don't repay it.

[firestarter]

$this->bbcode_second_pass_quote('mmasters', '')$this->bbcode_second_pass_quote('Yvan', '')$this->bbcode_second_pass_quote('joewp', 'Y')ep, they "create" money out of nothing. You deposit $100 then the bank loans out $900 based on the reserve you've given them, and they count the loan paper as an "asset" to offset the "liabilities" of those new dollars in demand deposit accounts they just created.