Fractional reserve lending - do banks create money out of thin air?

[UWDude]

yes, so at the end of the day, there may be close to $900 in circulation. But that's FAR less than somebody saying one $100 is deposited, they're allowed to lend out $900, because that means the next deposit will allow said bank to lend out $8100, where would that stop?

Doesn't work like that. If $100 is deposited, using the mathematical constant e, the most can be loaned out through constantly cycling the money is about $900. that is where is stops. Each time the principle, and the amount that can be loaned out, shrinks.

[cbc58]

this has already been discussed and clarified early on in this thread...

[Tpoints]

Doesn't work like that. If $100 is deposited, using the mathematical constant e, the most can be loaned out through constantly cycling the money is about $900. that is where is stops. Each time the principle, and the amount that can be loaned out, shrinks.

that's what I said, isn't it? I specifically said the other part was false and ridiculous.

[rpwi]

No, technically speaking they are not creating money.

Technically a counterfeiter isn't creating dollars bills...but rather mere look-alikes. The concept is similar with FRB. Sure the bank isn't creating base money (like actual dollar bills) but they are conflating base money with deposit money and there-in lies the problem.

On their balance sheet they are taking deposits and loaning a portion of it out while still offering demand deposits.

Deposits don't create loans in FRB...both the deposit and the bank loan establish each other but neither is a sole cause of the other. What the bank in essence is doing is mismatching a short term liability for a long term asset both of whom are held by external parties. The problem is that their short term liabilities (deposits) aren't real liabilities at all...I mean who would invest in a 0% checking account if it were an investment? Instead these liabilities are conflated with as base money and there-in lies the problem. There are more short term promises in the economy than can be met, because these short term promises are balanced by long term promises...which can't work...and instability/fraud is the natural byproduct.

As long as this isn't hidden from their depositors (and it isn't, read your contract with your bank) then there's no fraud

There is no need to hide how FRB works because people don't understand it. That doesn't mean it is not fraudulent.

But because these are demand deposits and because banks are FDIC insured and because they have a lender of last resort people don't read and understand their contracts with their banks and they don't know that their demand deposit is levered up to who knows how much so they ignorantly act in the market place as if there is more money when in fact all there is is loans being reloaned that are being reloaned that are being reloaned ect..

If government pulled support from the FDIC (and presumably) the open market, the banking system would crash and depositors and not banks would really be hurt. We need to end FRB, but probably in a more stable way.

[Zippyjuan]

Doesn't work like that. If $100 is deposited, using the mathematical constant e, the most can be loaned out through constantly cycling the money is about $900. that is where is stops. Each time the principle, and the amount that can be loaned out, shrinks.

The multiple assumes that all of the money is left in the bank as each person borrows more money. As soon as anybody decides to take out their money, it stops. All the "extra" money is only on the books at the bank- not out being spent on anything.

[UWDude]

The multiple assumes that all of the money is left in the bank as each person borrows more money. As soon as anybody decides to take out their money, it stops. All the "extra" money is only on the books at the bank- not out being spent on anything.

It is too being spent. It is being spent by the borrower, and then being deposited by the seller back into the seller's bank.

And do you not understand that the money is not created for one bank, but for the banking system as a whole? Seems like you are talking about it as if this is only a one-bank system.

Either way, there is a drain that makes this little racket fraudulent: interest. Book or no book, You deposit $100, eventually the banking system will loan out $900, and charge interest on it.

Furthermore, at the highest level, there are no more reserve tables anymore. Banks can loan out as much as they want, regardless of the reserves. This was changed first to 1/30th, than anything in 2008.

Get out some monopoly money and try it amongst three people. Don't forget the interest.

[Tpoints]

It is too being spent. It is being spent by the borrower, and then being deposited by the seller back into the seller's bank.

And do you not understand that the money is not created for one bank, but for the banking system as a whole? Seems like you are talking about it as if this is only a one-bank system.

Either way, there is a drain that makes this little racket fraudulent: interest. Book or no book, You deposit $100, eventually the banking system will loan out $900, and charge interest on it.

Furthermore, at the highest level, there are no more reserve tables anymore. Banks can loan out as much as they want, regardless of the reserves. This was changed first to 1/30th, than anything in 2008.

that doesn't explain why so many companies and houses went bankrupt. who benefitted from that? Banks?

[UWDude]

that doesn't explain why so many companies and houses went bankrupt. who benefitted from that? Banks?

Wow, that is quite a leap of topics, dude. Yes, banks benefited, but I don;t have the energy to get into CDS, CDO's, and the TARP bailouts.

[Tpoints]

Wow, that is quite a leap of topics, dude. Yes, banks benefited, but I don;t have the energy to get into CDS, CDO's, and the TARP bailouts.

banks benefitted by seizing and foreclosing on assets they can't sell?

[UWDude]

banks benefitted by seizing and foreclosing on assets they can't sell?

I am not going to that shit in this thread, nor do I care to go into that shit today. Get it? WTF? You're just like, "Hey, you're in a thread about FRB, but lets change the whole topic to the 2008 market crash. Yeah."

And uh...

had I wanted to discuss that, I would have posted in a thread about it.
And honestly, every time I see your avatar, I just think troll, so I have had enough bad run-ins with you to know you are probably just trolling again anyway.