whitestu
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| posted on 30/9/11 at 09:32 AM |
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Most of the money in society doesn't really exist. At a basic level the banks create money as follows:
Dave puts £10k in the bank.
Bank lends £9k to Pete, who spends it on a car.
Car dealer puts £9k in bank.
Bank lends £8k to Tom, who spends it on a car
Car dealer puts £8k in bank.
Bank lends £7k to Bill
etc etc
So far the £10k has bought £24k of cars & Dave still thinks he has £10k in the bank. If Dave wants his £10k back they give him other
people's money as they have lots of customers like Dave.
The bank hopes that all their customers don't ask for their money back at the same time!
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nick205
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| posted on 5/10/11 at 10:20 AM |
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quote:
Originally posted by whitestu
Most of the money in society doesn't really exist. At a basic level the banks create money as follows:
Dave puts £10k in the bank.
Bank lends £9k to Pete, who spends it on a car.
Car dealer puts £9k in bank.
Bank lends £8k to Tom, who spends it on a car
Car dealer puts £8k in bank.
Bank lends £7k to Bill
etc etc
So far the £10k has bought £24k of cars & Dave still thinks he has £10k in the bank. If Dave wants his £10k back they give him other
people's money as they have lots of customers like Dave.
The bank hopes that all their customers don't ask for their money back at the same time!
....It's even worse than that in reality.....
Each time the bank lend out the money they apply interest on the repayments. They then "package" the debt + interest into bonds and other
"financial instruments" which they sell again to investors - e.g. pension companys.
Then when Pete above loses his job and can't repay the loan the "real world" loss falls on the pension company....oh no sorry I mean
the "pensioner" (you and I) and not the bank who cunningly sold the "risk" to the pension company.
The whole thing is a house of cards with added smoke and mirrors for good measure.
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bobinspain
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| posted on 5/10/11 at 12:17 PM |
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It's called 'Fractional Reseve Banking', FRB (and a lot of other things). As described by previous posters, it's a kind of
money-multiplier for the banks because it only demands a level of reserves of a few per-cent of the bank's overall liabilities. (Solvency is a
different matter).
FRB has been much criticised for the current financial crisis including the woes of the US dollar, the euro and the £ sterling.
What I find very interesting (and somewhat disturbing) is the 'flight to gold' as a result of loss of faith in the fiat currencies of the
world. (Fiat currency--State issued money with no intrinsic worth or value). In the history of civilisation, there has never been a fiat currency that
has survived. Not one !
The flight to gold has manifested itself in the metal topping out at $2000 an oz recently since people believe it will always have an
'intrinsic' value. A gram of gold for instance will always buy you 30 loaves (say). Whereas you needed a wheelbarrow full of Deutchmarks
to buy a loaf of bread in Weimar Germany in 1923. (A glass of beer was 4 billion marks). Mind you, there were 100- trillion mark-notes in circulation.
(That's one note denominated as 100,000,000,000,000 or about 25 $US.
Gordon Brown was 'famous' for selling off 400 tons of gold between 1999 and 2001 when it was at a 20 year low. That little jaunt cost the
taxpayer around £12,000,000,000 or 12 billion, having sold it off at around $275 /oz. Genius !
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RK
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| posted on 5/10/11 at 12:31 PM |
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I promise not to go on, but the fellow who loaned out 9 quid to Pete, based on the 10 that Dave put in, actually loaned out more like 100 quid or even
500 quid. Then you get to see the magnitude of the problem. All loaned to people who couldn't pay it back. It is multiples of multiples that
gets you into trouble.
It's a bit like gang wars on the streets: nobody cares if a few hoodlums kill each other, but eventually, some small child gets in the way and
people get upset.
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Ninehigh
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| posted on 5/10/11 at 03:50 PM |
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quote:
Originally posted by bobinspain
(Fiat currency--State issued money with no intrinsic worth or value).
Is that a technical term or did someone have a stab at Italian cars and their money in one go, and it stuck?
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Benzine
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| posted on 5/10/11 at 04:11 PM |
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Money as debt
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