Bank need us more than we need them, thats the best kept secret. They use our deposits and leverage them into loans thru the fractional reverse banking model. What banks fear more than anything is a bank run, banks can literly be shut down overnight witness the FDIC takovers over the last 2 years well over 200 banks closed due to over leveraging. The same way a trader blows up when he is over-leveraged. Our wonderful federal reserve is suppose to monitor all banks in the federal reserve system, not all banks are in the system, but the big commercial ones are. Thats why they were bailed out. Trouble is they never should have been allowed to lever up like they did.
incorrect.You're very confused on money creation and banking. Banks create money every time a loan is made. Deposits come from loans. Loans are not created from deposits. say a new bank has one deposit of 30,0000 deposits / loans 30,000 / 0 now a loan is made to buy a car. deposits / loans 30,000 / 30,000 the seller of the car now has 30,000 to deposit in his bank ( for simplicity lets assume the same bank) the bank gets a new deposit of 30,000. And can now make a new loan. deposits / loans 30,000 / 30,000 30,000 / The process repeats over and over creating money along the way. At least that is how the Federal reserve describes it in their own documents. This is what fractional reserve banking is. A 100% reserve system is what you described above were some type of time deposit is needed to have a 100% reserve. here it is right from their own web site.What i just described above. How Banks Create Money "Banks actually create money when they lend it. Here's how it works: Most of a bank's loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank once again holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times." http://dallasfed.org/educate/everyday/ev9.html you can also find it in their own publication on money creation. http://www.federalreserve.gov/pf/pf.htm everything else in your post has nothing to do with the creation of money. Only functions after creation. No offense but I'll take the feds official documents over your imagination of how it works.
Not 100% reserve, reserve requirements are what 3.00%, I know they wanted to make it higher but the banks fought hard.
Wow yesterday was the end of QE2, and now today, the Bernanke announces ready for more. What the freak is going on, why can't let let prices correct so people don't have to keeep pating higher and higher prices. Wages are not rising, except on wall street.
I think you guys are incorrect. The reserve is there to cover withdrawals. By having a low reserve it is a danger because it one, makes it difficult to have enough money to cover withdrawals if there is a high demand for them and two, makes it difficult to cover withdrawals if there is a reduction in bank income due to defaults. There is no creation of new wealth unless it is QE. Even when they create wealth from new credit that is based on a future ownership of an asset or income stream. The initial cash payment is made into a bank in exchange for that future payment. I think Martinghoul would agree you are incorrect.
yes banks create money (not wealth) by monetizing existing assets. The money supply is increased every time an asset is monetized. Private banks increase the money supply buy monetizing assets. Banks create way more money then the fed itself creates. Take a look at the M3 money supply. you'll notice that up through the housing boom until 2008 we had a huge increase in the money supply. There was no QE at this time yet the supply of money increased rapidly why? Because bank lending (mortgages) increases the money supply. money creation is not wealth creation no more then Greenspan's asset inflation is wealth creation.
That increase in money supply is from an increase in the velocity of money. No new money has been created it has just moved around faster. You say that money is created when banks 'monetize'. That money, which was invested is lent out. In short the money lent out is only the money saved. The reason the money supply increases is because the borrowers who receive the lent money spend the money faster because they have to pay for it and only borrow to spend. The lender who would otherwise not have spent the money as they have a surplus of money invested it to receive return. In short what happened was the amount of money that was invested then lent out increased and the velocity of the money increased. Then other way the money supply increases is through a reserve reduction. Meaning less money is held to cover withdrawals. There is no new money creation. There is just an increase in velocity or a reduction in reserves.
Further note. Perhaps the correct terminology should be money introduction rather than money creation. Your understanding of it indicates QE as you state money creation. Whereas I would look at it as introducing money into the system. No money is created it is simply taken from another source such as an asset or future cash flow. The term creation indicates it is made like it is with QE when it is not backed up against an asset.
no, incorrect when a loan is made total banking system deposits go up. money is not taken from any were or moved. The fed is quite cleal on this if you read there documents i posted i highly doubt the treasury and fed are misinformed.Can you show me something from the fed that says that m0-m3 money supply states is some representation of money velocity. this might help you. How did we get over 57 trillion dollars in debt when all we have done for the last 250 years is create wealth by combining our ideas and our labor with the raw resources of the earth? In search for the answer to that question, letters were written to the U.S. treasury and others. The answer received from Russell Munk, assistant general council for the U. S. treasury, was: âthe actual creation of money (ALWAYS) involves the extension of credit from private commercial banks.â This means interest bearing loans. Mr. Munk then went on to say âYou may want to know whether the bank is the one getting the benefit of the new money, since the bank owns the new money while the customer has merely borrowed the money. The bank does indeed get the benefit of the new moneyâ. My next question was, If all money is created as interest-bear loans, how is the money created to pay interest on the loans? The answer received from Mr. Munk was, âthe money to pay the interest on loans comes from the same source as all other money.â In other words, it also has to be borrowed from a commercial bank. John M. Yetter, writing for the U. S. treasury stated: âThe money that one borrower uses to pay interest on a loan has been created somewhere else in the economy by another loanâ. John B Henderson, Senior Specialist in Price Economics, Congressional Research Service, The Library of Congress stated: âMoney is created when loans are issued and debts incurred, money is extinguished when loans are repaidâ. Quote: Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta: âIf all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulationâ. My next question was just what kind of credit do banks extend to us? I found the answer to that question in the Third Edition of the Federal Reserve System Purposes and functions page 6 âAll bank deposits are a form of credit. Basically, they represent amounts owed by banks to depositors. They come into existence by an exchange of bank promises to pay customers for the various assets which banks acquireâcurrency, promissory notes of business, consumer and other customers, mortgages on real estate, and Government and other securities.â Our currency is a liability of the issuing Federal Reserve Bank and an obligation of the US Government Source personal letter form M.M. Schneider Acting Executive Assistant Bureau of Engraving and printing. âWhen individuals or businesses want currency or coins to spend, they write a check, exchanging one form of money (checkbook money) for another (cash) both are a liability of a bank.â Department of the Treasury Office of the Public Correspondence Fact Sheet OPC-5 The Bureau of Engraving and Printing produces the nationâs paper currency and sells it to the Federal Reserve System for 4.2 cents per note. âThe Bureau of Engraving and Printing is not authorized to print or issue United States paper currency for direct delivery to the public. Currency notes are placed into circulation by your local financial organization and can only be obtained from that sourceâ Linda W. Coleman Dept. of the Treasury When, someone exchanges the checkbook money for the currency, the liability of a commercial bank is in effect shifted to a Federal Reserve Bank, Federal Reserve Notes move into circulation and checkbook money is removed from circulation. The net effect is the banking system creates and loans a promise to pay to the government and to the people and receives unto themselves as a profit the real physical wealth produced by the people. The government then uses its power to tax the people to guarantee the banks promise to pay. The government receives nothing except what it first takes from the people. So the governmentâs guarantee of the currency is based on a mortgage on all the homes ands other property of the people. This fact is well articulated in the Congressional Record March 9, 1933, H. R. 1491, pg. 83 speaking about the Federal Reserve Act, âUnder the new law, the money is issued to the banks in return for government obligation, bills of exchange, drafts, notes, trade acceptances, and bankersâ acceptances. The money will be worth 100 cents on the dollar because it is backed by the credit of the nation. It will represent a mortgage on all homes and other property of all the people in the nationâ This is what mean by the statement the money is backed by the faith and credit of the U.S. government. We must borrow the bankâs promise to pay and pay interest to have a medium-of-exchange. The banks owe, the government owes, and the people owe, nothing was loaned. Yet the banks and the government can go though the courts and force the people to give up all the real physical property to pay the loans. Up to this point no one as demanded that the banks pay. The debt is one of deception, just a trick played on the minds of the people. The long term effect is the people who actually produce the wealth lose their right to gain the full benefit of their production. The men running the banking system and the corporation that grow up around it gain control over everything. http://www.wealthmoney.org/articles/our-flawed-monetary-system-2/