Getting a mortgage creates money?

[sync]

Wasn't sure if this belonged here or in the economics and sound money section, but knew this would get more exposure.

So, I've been keeping up on the recent foreclosure fraud situation, mostly over on Zero Hedge, and have been seeing a lot of talk about how mortgages work. The discussions that I've been observing say that when you take out a mortgage that you are basically creating money because the bank issuing the money is getting it from one of the GSEs (Fannie or Freddie), and that the bank doesn't actually take any risk when issuing the mortgage because it eventually falls back on to the federal reserve.

I understand the premise of this except when the price of the raw materials and cost of labor are factored into the mortgage of the home. Could someone explain this to me? How is it money created when the raw materials, at least, had to be purchased to build the house? The cost of labor is paid to the workers by the contractor whether there is a buyer or not. So, is it the profit margin that is actually fake money being created?

Just not real clear on how all of this works, and haven't read "Modern Money Mechanics" yet. Any insight would be awesome!

Thanks guys,

--sync

[Danke]

Money Matrix (http://video.google.com/videoplay?docid=6989869784339234995#)

[Zippyjuan]

Where did the money for your mortgage come from? The bank did not create it from thin air. They got the money from somebody else who did not want to spend their money and deposited it at the bank. Their decision not to spend money they earned effectively reduced the money supply. Your borrowing it then raised the supply back up.

[sratiug]

Where did the money for your mortgage come from? The bank did not create it from thin air. They got the money from somebody else who did not want to spend their money and deposited it at the bank. Their decision not to spend money they earned effectively reduced the money supply. Your borrowing it then raised the supply back up.

Why lie Zippy?

[Johnnybags]

Money As Debt (http://video.google.com/videoplay?docid=5352106773770802849#)

and understand the FRACTIONAL reserve system and the lights will come on. Starts at .18 seconds.

[torchbearer]

Where did the money for your mortgage come from? The bank did not create it from thin air. They got the money from somebody else who did not want to spend their money and deposited it at the bank. Their decision not to spend money they earned effectively reduced the money supply. Your borrowing it then raised the supply back up.

I thought we were talking about fractional reserve banking, as in, you only need a fraction of reserve to meet all the money you can lend.
most of the money the banks lends is created way beyond what people have deposited.
true, a bank with $0 in reserve can't loan out anything. but put a $100 dollars into saving and it will soon be loaning out way more than just that $100.

Are you sure you aren't a paid shill for the banking cartel?

[Bruno]

I thought we were talking about fractional reserve banking, as in, you only need a fraction of reserve to meet all the money you can lend.
most of the money the banks lends is created way beyond what people have deposited.
true, a bank with $0 in reserve can't loan out anything. but put a $100 dollars into saving and it will soon be loaning out way more than just that $100.

Are you sure you aren't a paid shill for the banking cartel?

lol

[Chester Copperpot]

Ill never understand Zippy.

[Bruno]

Where did the money for your mortgage come from? The bank did not create it from thin air. They got the money from somebody else who did not want to spend their money and deposited it at the bank. Their decision not to spend money they earned effectively reduced the money supply. Your borrowing it then raised the supply back up.

So they only loan out the same amount of money they have in reserves? 1:1?

[speciallyblend]

all i know is banks do not want to help or work with you on saving your houses!! My wife is disabled and i constantly called my mortgage company. I wasn't seeking a refinance or any help. All i wanted to do was catch my mortgage up and i had 5300 to give them to catch up 100% but it took me weeks to get that total from wells fargo and even then they said it wasn't exact,so when i called wells fargo on friday and explained i would have my 5300 to catch up on monday morning! they made a point to express mail a bill for 8000. at that point i started packing my things and did not give them the 5300 and walked the f away from the house. F WELLS FARGO banks and our current government of dems and republicans can burn in hell for all i care!!!

[raistlinkishtar]

Where did the money for your mortgage come from? The bank did not create it from thin air. They got the money from somebody else who did not want to spend their money and deposited it at the bank. Their decision not to spend money they earned effectively reduced the money supply. Your borrowing it then raised the supply back up.

Are you trying to mislead people on purpose?

[Original_Intent]

Wow I had actually given Zippyjuan some credibility up until now. The only question I now have is: Is he an idiot, or does he think we are?

[Danke]

Wow I had actually given Zippyjuan some credibility up until now. The only question I now have is: Is he an idiot, or does he think we are?

I don't know, who had been giving him some credibility? :D:p

[Original_Intent]

I don't know, who had been giving him some credibility? :D:p

Can I haz aloe vera plz?

[Kregisen]

lol ouch one guy gets one thing wrong and the whole forum goes apeshit on him.

[Zippyjuan]

I thought we were talking about fractional reserve banking, as in, you only need a fraction of reserve to meet all the money you can lend.
most of the money the banks lends is created way beyond what people have deposited.
true, a bank with $0 in reserve can't loan out anything. but put a $100 dollars into saving and it will soon be loaning out way more than just that $100.

Are you sure you aren't a paid shill for the banking cartel?

If the bank has $100 in deposits, they can only loan out $90 due to the reserve requirement.

If somebody borrows that $90, they have $10 on hand. Now that person doesn't spend that money (to impact inflation you have to spend money- money in the bank is not doing anything good or bad in the economy- it basically doesn't exist as far as the economy and active money supply is concerned- same thing as if it is under a mattress or was thrown away). The depositor could have spent $100 but didn't- taking $100 out of circulation. This second person now has $90. He can spend or deposit it. If he deposits it at the same bank, they now have $100 on hand again (the $90 just deposited plus the $10 they had in reserve from the original deposit). But as far as deposits credited, they have $190. Sounds like the money supply increased- yes? But so far, the money only exists on paper at the bank. It is not money circulating. Let's go one level further. The bank has $190 dollars in deposits so they can have up to $$171 in loans. They already loaned out $90 so they can still make up to $81 in loans. So lets loan that out. $19 on hand and $171 loaned out. Nobody is spending that money yet. Let's have the $90 borrower spend his money. He takes that money out of the bank. He can now spend $90 (the original depositor could have spent $100 so this is lower than the money circulating could have been if the first person had spent the money himself instead of depositing it at the bank). Now we have the two loans out there- the $90 and the $81 dollar loan.

Where does that leave the bank? They have only $100 on deposit yet they have $171 out there. They are out of balance- they have issued too many loans for the money they have on deposit. They have to balance at the end of the day so to do so they have to increase their reserves or deposits. Where do they get that money? They have to borrow it- which takes money back out from being circulated. To balance that $171 in loans they are required to have $190 in deposits so they have to borrow that $90 from somebody else- or attract new deposits of that amount- basically neutralizing that $90 taken out to spend. (some people neglect to look at this step when they consider the "creation of money out of thin air").

In the short term, the borrowers increased the money they have available to spend and the depositors reduced the money they have available to spend. In the future, when the borrowers pay off their loans, they have less money to spend then they would have at that time had they not needed to pay back the loan (effectively reducing the money supply) and when the depositors finally decide to spend their money in the future, they have more money to spend (increasing the money supply) than they would have if they had spent the money when they earned it instead of depositing it.

[sratiug]

If the bank has $100 in deposits, they can only loan out $90 due to the reserve requirement.

If somebody borrows that $90, they have $10 on hand. Now that person doesn't spend that money (to impact inflation you have to spend money- money in the bank is not doing anything good or bad in the economy- it basically doesn't exist as far as the economy and active money supply is concerned- same thing as if it is under a mattress or was thrown away). The depositor could have spent $100 but didn't- taking $100 out of circulation. This second person now has $90. He can spend or deposit it. If he deposits it at the same bank, they now have $100 on hand again (the $90 just deposited plus the $10 they had in reserve from the original deposit). But as far as deposits credited, they have $190. Sounds like the money supply increased- yes? But so far, the money only exists on paper at the bank. It is not money circulating. Let's go one level further. The bank has $190 dollars in deposits so they can have up to $$171 in loans. They already loaned out $90 so they can still make up to $81 in loans. So lets loan that out. $19 on hand and $171 loaned out. Nobody is spending that money yet. Let's have the $90 borrower spend his money. He takes that money out of the bank. He can now spend $90 (the original depositor could have spent $100 so this is lower than the money circulating could have been if the first person had spent the money himself instead of depositing it at the bank). Now we have the two loans out there- the $90 and the $81 dollar loan.

Where does that leave the bank? They have only $100 on deposit yet they have $171 out there. They are out of balance- they have issued too many loans for the money they have on deposit. They have to balance at the end of the day so to do so they have to increase their reserves or deposits. Where do they get that money? They have to borrow it- which takes money back out from being circulated. To balance that $171 in loans they are required to have $190 in deposits so they have to borrow that $90 from somebody else- or attract new deposits of that amount- basically neutralizing that $90 taken out to spend. (some people neglect to look at this step when they consider the "creation of money out of thin air").

In the short term, the borrowers increased the money they have available to spend and the depositors reduced the money they have available to spend. In the future, when the borrowers pay off their loans, they have less money to spend then they would have at that time had they not needed to pay back the loan (effectively reducing the money supply) and when the depositors finally decide to spend their money in the future, they have more money to spend (increasing the money supply) than they would have if they had spent the money when they earned it instead of depositing it.

If I save 100 fed notes under my mattress, it is saved, and those fed notes are taken out of circulation. If I put in in the bank on the other hand, I am saving those 100 fed notes and someone else is spending 90 of those same fed notes at the same time. That means the bank created 90 fed notes out of thin air to devalue the 100 fed notes I was saving.

[knarfxii]

Im glad some people are waking up! This is so true!

[Zippyjuan]

If I save 100 fed notes under my mattress, it is saved, and those fed notes are taken out of circulation. If I put in in the bank on the other hand, I am saving those 100 fed notes and someone else is spending 90 of those same fed notes at the same time. That means the bank created 90 fed notes out of thin air to devalue the 100 fed notes I was saving.

Not really. You loaned money to the bank by depositing it and they loaned part of that money to somebody else. Like you gave your friend Ted $10 and he loaned $5 of it to Mike. Ted did not create $5 to give Mike. It came from the money you gave him.


someone else is spending 90 of those same fed notes at the same time
If your money is at the bank, you are not spending it at the same time as somebody else. If your money is not at the bank because say you are spending it, it is not available to be loaned out for somebody else to spend.

[Live_Free_Or_Die]

Your signature creates money.

When your signature created this money did you press the enter key on your keyboard to print out promissory notes for the money you just created?

What did you get in return this money you created but forgot to print up promissory notes on?

Seems like it is an exchange of promissory notes.

Since your promissory notes get sold how can it be said a Federal Reserve promissory note is less spendable than your promissory notes?

Are you collecting interest on the money you created?

[Fox McCloud]

the problem is that the $90 loaned out is not $90 of the $100 that was deposited; it's $90 of new money (meaning there's $190 total in the economy when the bank makes the initial loan); the bank maintains dual access to both at the same time; this is why Rothbard has repeatedly stated (in a book I've repeatedly suggested that you read the past year to year and a half...to no avail; the book being "They Mystery of Banking") that the fractional reserve system is inherently bankrupt as it's loaned out more money than it actually ever had.

it gets even worse if a bank is making a loan to someone who is guaranteed to deposit that very money at the same bank; in this instance the bank can literally make a $900 loan out of $100; in practice this doesn't happen much (to my knowledge) because banks cannot guarantee that the loan recipient will deposit the received money back in the bank. Therefore, since this guarantee doesn't exist, they go with the the alternative mode described above.

Heck, just read the wikipedia article on fractional reserve banking; it's admitted and detailed there that it does increase the overall money supply and admits it is inflationary in nature.

[Bruno]

the problem is that the $90 loaned out is not $90 of the $100 that was deposited; it's $90 of new money (meaning there's $190 total in the economy when the bank makes the initial loan); the bank maintains dual access to both at the same time; this is why Rothbard has repeatedly stated (in a book I've repeatedly suggested that you read the past year to year and a half...to no avail; the book being "They Mystery of Banking") that the fractional reserve system is inherently bankrupt as it's loaned out more money than it actually ever had.

it gets even worse if a bank is making a loan to someone who is guaranteed to deposit that very money at the same bank; in this instance the bank can literally make a $900 loan out of $100; in practice this doesn't happen much (to my knowledge) because banks cannot guarantee that the loan recipient will deposit the received money back in the bank. Therefore, since this guarantee doesn't exist, they go with the the alternative mode described above.

Heck, just read the wikipedia article on fractional reserve banking; it's admitted and detailed there that it does increase the overall money supply and admits it is inflationary in nature.

And Bernanke has admitted the same when pressed by Ron Paul.

[sratiug]

Not really. You loaned money to the bank by depositing it and they loaned part of that money to somebody else. Like you gave your friend Ted $10 and he loaned $5 of it to Mike. Ted did not create $5 to give Mike. It came from the money you gave him.


If your money is at the bank, you are not spending it at the same time as somebody else. If your money is not at the bank because say you are spending it, it is not available to be loaned out for somebody else to spend.

No, really. When I save money under my mattress it is out of circulation. I'm not spending it, and no one else is spending it either. That's what savings is. Money that you do not spend. You can pretend that saving is the same as loaning all you want, but they are not the same thing.

If to save money is to loan money then why would the word loan exist?

[Zippyjuan]

No, really. When I save money under my mattress it is out of circulation. I'm not spending it, and no one else is spending it either. That's what savings is. Money that you do not spend. You can pretend that saving is the same as loaning all you want, but they are not the same thing.

If to save money is to loan money then why would the word loan exist?

So you can't save money in a bank then? "Savings accounts" and "Savings and Loans" must be mis-named I guess. Only mattresses are for saving. When you put money in the bank you aren't spending it either. When you take your money out of the bank to spend it, the bank does not have that money to loan against or from.

The bank says give us your money for a while and we will pay you interest (not all accounts pay interest these days though). So you make a deposit to keep your money until you want to spend it yourself. That is you lending money to the bank (even if you prefer not to call it that- it is what you are actually doing). They turn around and lend part of it to somebody else at a higher interest rate than they pay you. This is one of the ways banks make money. (Actually these days they make more money off fees than the spread on interest rates).

[sratiug]

So you can't save money in a bank then? "Savings accounts" and "Savings and Loans" must be mis-named I guess. Only mattresses are for saving. When you put money in the bank you aren't spending it either. When you take your money out of the bank to spend it, the bank does not have that money to loan against or from.

The bank says give us your money for a while and we will pay you interest (not all accounts pay interest these days though). So you make a deposit to keep your money until you want to spend it yourself. That is you lending money to the bank (even if you prefer not to call it that- it is what you are actually doing). They turn around and lend part of it to somebody else at a higher interest rate than they pay you. This is one of the ways banks make money. (Actually these days they make more money off fees than the spread on interest rates).

No, you can't save money in a fractional reserve bank. When money is saved, it is not spent by ANYONE, that is the very definition of saving. When you put money under a mattress and really save it, NO ONE SPENDS IT. Savings are by definition not spent. How can you not understand that ZERO IS LESS THAN ONE. When actually saved, the money is spent ZERO TIMES. With fractional reserve "savings" the money is spent 0.9 times. The 0.9 times are created out of thin air. You know this and you should be banned from these forums because you are a FED TROLL.

[Zippyjuan]

Thank you for your vote of confidence! :)

[sratiug]

Thank you for your vote of confidence! :)

No problem Zippy. I am going to bed now. I need to save some energy for tomorrow if I can manage to not sleepwalk 90% of the night working as a slave for the new world order and depending on the FDIC to resuscitate me if I succomb to death from exhaustion. Have a nice night.

[Original_Intent]

No problem Zippy. I am going to bed now. I need to save some energy for tomorrow if I can manage to not sleepwalk 90% of the night working as a slave for the new world order and depending on the FDIC to resuscitate me if I succomb to death from exhaustion. Have a nice night.

emphasis mine :D

[Zippyjuan]

No problem Zippy. I am going to bed now. I need to save some energy for tomorrow if I can manage to not sleepwalk 90% of the night working as a slave for the new world order and depending on the FDIC to resuscitate me if I succomb to death from exhaustion. Have a nice night.

Perhaps your mattress is just too lumpy from all the money you have saved under it. Sleep well!