[–] [deleted] 2 points 8 points 10 points (+10|-2) ago (edited ago)
[–] theshopper 0 points 5 points 5 points (+5|-0) ago
And then comes the federal reserve to create that cash out of thin fucking air.
It's really quite simple how we're all getting fucked, but quite hard to get anyone to do something about it.
[–] FUCK__ISLAM 0 points 2 points 2 points (+2|-0) ago
You have it wrong by an order of magnitude. Assuming, as the graphic does, a 10% reserve ratio then at step 1 the bank will loan $9,000. They don't make loans with deposits, they use deposits as a basis for making loans. They create the money at the time it is loaned. The Federal Reserve and its member banks are a money-printing government-backed cartel. Yet they are rapacious and crooked enough to sometimes go bankrupt despite a license to print money and evil and brazen enough to ask for public handouts when they do.
[–] WORF_MOTORBOATS_TROI 1 point -1 points 0 points (+0|-1) ago
This isn't creating money. The op is adding credits and debits. On a balance sheet the deposits are all on one side of the balance sheet for money owed to others, while the loans are on the other side as money owed to the bank. The 10% "fractional reserve" is the amount that they must keep on hand in order to pay out tbe money owed to others in the event that a customer comes in to collect. That's why they pay more interest for a CD or something where you agree you won't collect until a certain future date.
[–] BloatedVoatGoat ago
People don't borrow money to put back into a bank. Doesn't make sense
[–] ARsandOutdoors [S] ago
The money eventually makes it back into the bank, where it becomes an asset on their balance sheet from which they can loan out against. They can do that over and over again until they hit their reserve ratio and can't do it any more.
[–] BloatedVoatGoat ago
They still have the liability ratio to maintain against the loans of 9:1. So they cannot make new loans using depreciating items like cars or non colletral loans but can against things that do appreciate like a home. So if you have paid down 10% on your home and have 20% equity they can write out 100% of the value in another loan. And with that we can see how housing broke the market.
[–] TheAntiZealot 0 points 1 point 1 point (+1|-0) ago
There are 0 dollars.
You loan me 1,000 dollars.
I owe you 1,050 dollars.
This is correct, but the full multiplier effect is perhaps easier to understand. Once everyone has deposited their money with the bank, there will be $1000 in reserves. AND $10,000 IN LOANS. From the one $1000 initial (new) deposit.
And get this. That is at 10% reserve ratio. Most Wall St banks are actually using 3% or less. Meaning they will loan out $30 - 50 THOUSAND, for every ONE THOUSAND in new deposits.
[–] fusir 0 points 14 points 14 points (+14|-0) ago (edited ago)
What is this, the 60s?
Where's the part where the reserve amount is 0.1% and can exist as cash equivalent investments and a fed res loan of less than 0% real interest rate can cover any gap in the reserve amount.
Really banks don't get most of the money they lend out from depositors at all. If compared directly to that the reserve amount would be negative. Also the amount deposited impacts the amount lent almost zero. The idea that some proportion like that is relevant to today's system is an imagination.
Instead think of it as two separate businesses. The bank stores your money for free and makes really zero money on it other than a relationship to convince you to have them as your first consideration for other products. Then as a separate business a bank will rent out receipts dripped down through them from the federal reserve. The amount it costs them to get those receipts is slightly impacted by deposits but not in a significant way. So long as the cost of obtaining those receipts (in NPV terms) is less then the value they derive from selling you a loan (in NPV terms) they will sell sell sell a loan, which it's guaranteed it will be because the fed hands out those receipts like they were paper.
[–] rejectedfromreddit 0 points 1 point 1 point (+1|-0) ago
Thanks for the explanation. The diagram makes sense, but I've never heard the counterargument, which is just as logical.
[–] Rawrination 0 points 5 points 5 points (+5|-0) ago
Not so much a counter argument. Just a clarification that the diagram is outdated and optimistic in the extreme.
Modern money almost exclusively exists as data on someone's machine.
Our enemies LITERALLY have the infinite money cheat codes to life. The only thing stopping them from just printing it endlessly all at once is the desire to still be able to acquire real goods and services for that currency before it becomes worth less than toilet-paper.