Cryptocurrency: Butters Debate Banks
grarpamp
grarpamp at gmail.com
Wed Feb 8 21:05:20 PST 2023
Just in case anybody forgot how our monetary system works to rob us,
here it is from a reliable source plain as day.
Investopedia: Do Banks Create Money?
submitted 1 day ago by richmoney46
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[–]Shield4SI 256 points 1 day ago
The creation of money via loans isn't the issue. It's actually an
important part of our economy and allows for faster innovation. No
loans equals no mortgages, small business loans, or financing of
things that we use every day. Once the loan gets paid back, the
capital is destroyed
The printing of money via governments to bail out failing companies,
banks, and their own asses is the issue.
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[–]HairyExcuse7927redditor for 7 weeks 61 points 1 day ago
We went from not being able to fly, to putting boots on the moon in
about 60 years while also financing two world wars all while on the
gold standard dollar.
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[+]Percyheckendorf -31 points 1 day ago*
And then innovation slowed rapidly when we fucked the money up.
The iPhone is essentially an iteration on 1950s-60s military science
breakthroughs.
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[–]godofpumpkins 19 points 1 day ago
What? Computing has improved exponentially since then, the internet
and tech has broadly revolutionized society? We invented cryptography
to support it, which among many things enabled the development of
Bitcoin. The amount of economic and societal growth since moving off
the gold standard is mind boggling. I’m not going to claim there’s a
causal link between the two, but it seems utterly indefensible to
claim that the past half century hasn’t been absolutely revolutionary
for all of humanity.
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[+]Percyheckendorf -13 points 1 day ago*
Improvement, iteration, not new breakthroughs. The cryptography,
internet, and silicon breakthroughs are many decades old
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[–]BastiatF -1 points 1 day ago
To paraphrase Eric Weinstein and Peter Thiel, if you were put in a
modern room but without the screens and computers, you wouldn't be
able to tell whether we are in the 1960s or the 2020s.
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[–]endfm 2 points 1 day ago
Décor.
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[–]Impressive_Editor185 2 points 1 day ago
Stupidity
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[–]Percyheckendorf -4 points 1 day ago*
An iPhone is a lithium-ion powered silicon based computer with a touch
screen, camera lense, speaker, and microphone, receiving wireless data
transmissions and secured with cryptography.
If it’s so dumb can you please point to the part of the iPhone that
was a technological breakthrough discovered after 1976?
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[–]Impressive_Editor185 1 point 14 hours ago*
Go use a smart phone without internet which was invented in 1983 and
not popular until late 90s network cards were around the same time
aswell
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[–]Percyheckendorf 1 point 12 hours ago*
The DOD made the internet in the 1960s when they figured out how to
make computers talk with each other. By the 1969 universities were
sharing resources on ARPANET. 1973 ARPANET was international. TCP/IP
is not when the internet was invented, is when they iterated to an
accessible standard.
Ethernet, 1974
Try again
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[–]Impressive_Editor185 1 point 5 hours ago*
U walk around with a computer to computer/Ethernet cable attached to ur phone?
WiFi was invented and first released for consumers in 1997 when a
committee called 802.11 was created then wireless Internet started
rolling out commercially to the public in 1999 with the release of the
apple airport
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[–]Percyheckendorf 1 point 5 hours ago*
Bro wireless data transfer has been around since the late 19th
century. It’s wave decoding… radio
OFMD used by wi-fi/bits/5G, 1966
Got another?
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[–]Impressive_Editor185 1 point 5 hours ago
Ur clearly miss understanding on purpose mobile broadband/cellular is
1991 aswell the things ur saying are completely different im clearly
not talking about wave decoding
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[+]gumbopowder -20 points 1 day ago
lol you think we landed on the moon in 1969 and can't rebuild the
technology to do it again..
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[–]HairyExcuse7927redditor for 7 weeks 12 points 1 day ago
Uh…no, I’m saying we went from not knowing how to fly to landing on
the moon and people act like innovation was impossible on a gold
standard dollar therefore we need fractional reserve banking and fiat
currency…
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[–]Melodic_Duck1406 2 points 1 day ago
I got news for you bud,
Bank loans back then were made up money too. There is a whole western
movie about it and everything.
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[–]iiJokerzace 34 points 1 day ago
This is also implying 100% of all loans are repaid and no corruption
is going on.
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[–]antennawire 24 points 1 day ago
Not only that, they can loan out 20x the underlying fiat amount.
Fractional banking, it's usually only 5% they need to have as
collateral. In the USA there's even no limit anymore:
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
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[–]please_take_one 1 point 8 hours ago
Reserve requirements have not been the limiting factor for a long
time. The limiting factor is more just that you have to be a big bank
and you have to not step too far out ahead of the “pack.”
Imagine you are a smaller bank and you loan too much; the money starts
in your accounts but will eventually flow to accounts held at other
banks and you will have net outflow, and will go bust trying to settle
with other banks.
Or imagine you are a big bank but you loan way more than other banks
your size. Same problem-- the net flow will statistically be biased
towards flowing from customers holding accounts with you to customers
holding accounts at other banks. So you will net negative and you
eventually won’t be able to settle with competing banks.
But now imagine you are one of the big banks, and you and all the
other big banks gradually start ticking up how much you are lending,
in relative lockstep with one another. Then the net flows between all
of you will remain pretty equal and you won’t go bust. The banking
sector as a whole then is driving a boom at this point, and profiting
off of it of course. Then it goes bust and no one is held accountable
and no one responsible has to forfeit any of the assets they picked up
during the boom part of the cycle. Middle class and poor foot the
bill. Boom/bust cycles are driven by banks and each time there is an
asset transfer towards the big banks and the big players who sit at
the table next to those elites.
Governments or central banks quietly admit that this is how it works
these days. And they claim that the banking sector is regulated
somehow but we all know that is so flimsy as to be nonexistent.
Here is the Bundesbank (Germany) admitting how money creation works on
their youtube channel but they of course present it as totally
harmless and well-regulated.
https://www.youtube.com/watch?v=xHXRE3yKgWg
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[–]ronoda12 39 points 1 day ago
Not really. Banks creating repeated debt out of same money causes
inflation and this is more than Fed printing new money. Also this
leads to systemic risk when banks go towards zero reserve.
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[+]poco -14 points 1 day ago
The alternative is no loans. Not better.
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[–]HappyCrusade 32 points 1 day ago
Why is that so? Anyone with reserves/savings can loan their assets
without creating them. Why does money need to be created to issue a
loan, in your opinion?
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[+]poco -18 points 1 day ago
Why is that so? Anyone with reserves/savings can loan their assets
without creating them.
That's what banks do.
Why does money need to be created to issue a loan, in your opinion?
Money isn't created to issue a loan, issuing a loan is what causes the
money multiplier because that loan becomes a credits somewhere else.
I lend you $100, you lend $90 to Fred and Fred lend me $80. Now we
have $270 in loans from only $100 of real money. Not magic, not
created, just a feature of lending.
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[–]CoolioMcCool 21 points 1 day ago
You have $100, you lend me $90, now you have $10 and I have $90. No
money created.
The bank has $100, lends you $90, and they still have $100. Money created.
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[+]poco -14 points 1 day ago
The bank has $100, lends you $90, and they still have $100. Money created.
That's not how it works. The bank has $100 and lends you $90, now they
have $10 left.
The money multiplier works because you either deposit that money into
a bank or you use it to buy something and the seller deposits that
money into a bank. Now all the banks have $190 deposited and $90 in
loans.
There is no way to lend money where this doesn't happen.
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[–]AtheistMantis69 5 points 1 day ago
I deposit 100$ to the bank, the bank takes those 100$ and lends you
100$. We both have 100$ in our accounts.
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[–]DowvoteMeThenBitch 5 points 1 day ago
But the bank only has a single $100 bill to back up $200 of accounts
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[–]poco 2 points 1 day ago
And $200 in their balance sheets.
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[–]poco -2 points 1 day ago
Yes, exactly. And you can't prevent that unless you ban loans
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[–]Mintleaf007redditor for 3 months 1 point 23 hours ago
you can have 100% reserve requirement and still have loans.
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[–]Zdendon 8 points 1 day ago
You put 100 in bank, and bank will lend 800. (While still having your
100) They actually never lend out deposit money, they create new money
instead.
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[–]poco -1 points 1 day ago
That's not how it works. Not unless you are a central bank that can
print new money.
The money multiplier works by people depositing borrowed money to get
loaned out again.
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[–]ItsShiva 16 points 1 day ago
Please research the term fractional reserve banking and re evaluate your comment
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[–]DowvoteMeThenBitch 11 points 1 day ago
Fractional reserve banking is so clearly corrupt that it’s hard to get
people to understand it’s legitimately magic money being printed.
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[–]poco 3 points 1 day ago
I just described it in my comment. Fractional reserve banking just
means that some fraction of the deposits are reserved as cash. In my
case I used 10%.
You deposit $100 and they lend out $90.
This isn't rocket surgery.
I understand that this can have a multiplying effect over many loans
such that the total deposits into the bank can exceed the actual cash.
There is now $190 on the books.
It isn't magic and my original point, that everyone is missing, is
that this is a mathematical feature of any lending. If you have loans
then this happens. If you don't want this to happen then you can't
have any loans.
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[–]ItsShiva 2 points 1 day ago
You're right that you described it but you're wrong about the scale.
It isn't that they have 100 in reserve and lend 90. Unless the 08
crash changed things, at that point (and likely still today) the ratio
of reserve to debt as asset was something like 1 to 99. So when thats
the case on scale of trillions, does that seem ok to you? Further as
mentioned above what are the reserves? Cash in the form of...federal
reserve NOTES. More debt instruments that are backed by what exactly?
Nothing more than the faith of a government. Sure you can say that has
value in so far as the government has a military and can force change
through that. But the very idea that you create debt using old debt
and pay it off using new debt creates only inflation. Fine, a constant
inflationary environment can work well and in peace, but only so long
as the distribution of these debt instruments (federal reserve notes)
has some basis in EQUITY, and so long as the people have faith in
their government. Look around you and ask your self is the
distribution of federal reserve notes really based in equity and faith
in the government or is it possible that bad actors have been skewing
the distribution for themselves?
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[–]CoolioMcCool 1 point 1 day ago
Idk if English is your second language or something but holy fuck
"This isn't rocket surgery" had me laughing my ass off.
Aaanyway, do you know what the required reserve ratio is currently for
commercial banks in the USA? Pretty sure it is 0 now(as of 2020), and
as the money multiplier can be calculated by 1/Reserve Ratio that
allows effectively infinite loans.
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[–]DataFunctional4Troyredditor for 3 months 2 points 1 day ago
Please research double-entry book keeping.
One bank's assets are another bank's liabilities.
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[–]PseudonymousPlatypusredditor for 3 weeks 3 points 1 day ago
Yes but that’s not what’s being discussed here.
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[–]ItsShiva 1 point 1 day ago
You're right one banks assets are another's liability. State and
federal banks borrow money from the federal reserve bank before they
make loans. So the monies the fed reserve lends are its assets and the
monies loaned to the state and federal banks are their liabilities.
But, then, where does the federal reserve get their assets from to
lend out to state and federal banks?
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[–]DataFunctional4Troyredditor for 3 months 3 points 1 day ago
I'm shocked you keep getting downvoted. Wth is happening to this sub.
What you're describing is called double-entry book keeping.
And the reason I guess you're getting so many votes is because it goes
contrary to the sounds bouncing around in this echo chamber.
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[–]tallreagan 1 point 21 hours ago
Fractional reserve banking, that's why
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[–]MadZane 2 points 1 day ago
This actually isn’t how it works at all. Banks can lend many times the
money they actually hold. It’s something like 10 times.
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[–]poco 1 point 1 day ago
No they can't, that's not how this works.
That number you are thinking of is the money multiplier which is
1/reserve ratio.
If your reserve ratio is 10% then the multiplier is 10.
That doesn't mean that a bank can lend out 10x the money on deposit,
it means that a bank can lend out 90% of the money on deposit, but if
that loaned money is deposited back into the bank then they can loaned
it out again.
$100 deposited can become a $90 loan which can become a $90 deposit,
which can become an $81 loan and then an $81 deposit.
$100 + $90 + $81 +... ~= $1000
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[–][deleted] 1 day ago
[deleted]
[–]Morgothic 1 point 1 day ago
And instead, they did away with them all together during covid.
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[–]HearMeSpeakAsIWill 1 point 1 day ago*
What you're describing is fractional reserve banking, and no, it is
not the only way to lend money. The problem here is that the bank
allows the original depositor to draw upon their $100, even after it
has been loaned out. That's why money gets created in this scenario.
Not because it's inherent in how loans work.
If I lend you my car, for example, I no longer have a car to use
myself. This is also how lending used to work in the days of gold and
silver. When you deposit gold into a bank and it gets lent to Tom, you
don't get to spend that gold until Tom repays his loan. You physically
don't have access to it anymore. That system limits the ability of the
economy to grow, but it doesn't prevent loans altogether.
Renaissance-era banks realised they could get around this by issuing
"promissory notes" in lieu of gold, which is where the money creation
started. That's exactly what banks are doing now, except there's no
distinction between the promissory note and the underlying asset. It's
all just considered USD.
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[–]poco 1 point 1 day ago
Promissory notes make it easier to move large sums of value around
without moving physical gold but, technically, fractional reserve
lending could have worked with real gold too. They just didn't do it
because of the hassle and they didn't think of it sooner.
I deposit 100 gold coins in your bank. Fred needs 100 gold coins so
you lend it to him for a fee. Fred pays my those coins for services
rendered and I deposit them back in your bank. Now you have 200 gold
coins on deposit and only 100 coins in the bank, but an IOU from Fred
worth 100 coins.
If I want to withdraw all my money you have to make me wait until you
can in the loan from Fred who doesn't have enough, I complain to my
friends, it and there is a run in your bank and you get hanged.
Edit: And more specific to your example,
you don't get to spend that gold until Tom repays his loan.
The same thing happens with USD at a bank if everyone tried to
withdraw their money all at once. It's called a bank run.
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[–]Mintleaf007redditor for 3 months 1 point 23 hours ago
They just didn't do it because of the hassle and they didn't think
of it sooner.
they knew all about it but countries that did this went bankrupt and
were overthrown for corruption.
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[–]ronoda12 0 points 1 day ago
Nope. If they have 10 left that should reflect in your account. Not
how it works. Stop spreading misinformation.
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[–]richmoney46[S] 2 points 1 day ago
No that’s what credit unions do, banks are different
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[–]Professional-Tea2397 1 point 19 hours ago
I appaud you for trying to explain how fractional reserve banking and
the money multipler work, you are spot on of course.
I've tried before in this sub but its an echo chamber of ignorance on
this topic.
I leave this comment so you don't lose faith in humanity
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[–]Miz4r_ 1 point 1 day ago*
In your example there is still only $100 in existence, but in the case
of banks there actually is more money flowing around now in the
economy. Until everyone asks for their money back, then you get a
credit crunch like in 2008.
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[–]poco 1 point 1 day ago
Exactly.
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[–]DataFunctional4Troyredditor for 3 months 0 points 1 day ago
It's called double entry book keeping. One bank's assets are another
bank's liabilities
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[–]LetsPeee 14 points 1 day ago
The alternative is accurately priced loans. If you take a risk, you
should be prepared to fail.
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[–]PseudonymousPlatypusredditor for 3 weeks 3 points 1 day ago
No the alternative is loaning money that exists. Not loaning non-existent money.
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[–]poco 1 point 1 day ago
How do you lend money that doesn't allow for the money multiplier?
If I lend you $100, what's stopping you from lending it out to someone else?
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[–]Mintleaf007redditor for 3 months 1 point 23 hours ago
nothing except the risk that you wont get paid back and still owe on your loan.
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[–]poco 1 point 21 hours ago
Yes, that's how loans work. And that's how money is multiplied by loans.
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[–]ronoda12 1 point 1 day ago
You seem to live in a binary world.
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[–]poco 1 point 1 day ago
How do you lend money and prevent the money from getting loaned out
again? Seriously curious how you prevent the money multiplier while
still allowing loans?
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[–]ronoda12 1 point 1 day ago
By curbing how much and how many times you can loan.
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[–]poco 1 point 1 day ago
How do you prevent me from lending money that I borrowed?
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[–][deleted] 1 day ago
[deleted]
[–]poco 1 point 1 day ago
Tell me how you loan someone money without the money multiplier coming
into effect?
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[–]bitsteiner 5 points 1 day ago
Correct, it allows the economy to grow exponentially. The only problem
is that civilization can't crow indefinitely in a limited world. If
not stopped, it will destroy human habitat in a few hundred years. We
need to change the monetary system to limit credit creation to a point
that prevents exponential growth.
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[–]Automaton9000 16 points 1 day ago
No, the creation of money via loans is the issue. The Fed creates
reserves which can be used by banks to create money which in turn is
deposited and used to create more money. More money is created via
loans than via the federal reserve's creation of new reserves.
No one is saying get rid of loans, just have the damn capital to back them.
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[–]DataFunctional4Troyredditor for 3 months 2 points 1 day ago
More money is created via loans than via the federal reserve's
creation of new reserves
Can you provide a source?
Money can also be created outside the US through double-entry book keeping.
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[–]Automaton9000 4 points 1 day ago*
Here is the total reserves of us banks: ~3T$
https://fred.stlouisfed.org/series/TOTRESNS
Here is total outstanding US loans: ~12T$
https://www.ceicdata.com/en/indicator/united-states/total-loans
But it's moreso knowing the accounting behind it all. Bank reserves
aren't circulated as currency directly. They only contributed to
inflation by giving the banks the ability to loan additional money
when the reserves were printed (back when reserve requirements were
10%, today they are 0% so reserve balances technically have no impact
on potential inflation levels since banks can loan any amount with any
amount of reserve capital, even none). So at the end of the day it is
mainly banks that inflate the currency supply, even though they are
enabled by the FED and the financial system.
Money can be created outside the US yes. In other currencies, not
dollars. All that means is they can mess with the exchange rate of the
dollar and their specific currency.
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[–]DataFunctional4Troyredditor for 3 months 1 point 1 day ago
Money can be created outside the US yes. In other currencies, not dollars
I have a bridge to sell you then. US dollars can indeed be created
outside the US using a ledger-based system among commercial banks.
https://theunhedgedcapitalist.substack.com/p/how-the-eurodollar-system-works-and
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[–]mushambani 7 points 1 day ago
Mmm as i see it the printing money issue its a consequence not the cause
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[–]Ima_Wreckyou 3 points 1 day ago
Credit money may have useful features in some cases, but left
unchecked it leads to some serious degenerate gambling and debt
bubbles.
I think a fixed supply asset like Bitcoin is actually required to keep
it in check.
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[–]frankiefrank1e 2 points 4 hours ago
Said it in more nice words than I had, but this is correct
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[–]marcusmv3 2 points 1 day ago
Yes, this is what allows us to grow faster than if we were on a gold
standard being capped to the rate at which we can mine gold vs the
amount of gold in existence.
But let's talk about the reserve requirement going from 10% when we
were kids to 0% now...
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[–]Eggplant-Imaginary 5 points 1 day ago
Reported god growth figures are half of what they were on the gold
standard. Growth is restricted by the invention of new technologies
that can produce more not print/creating money, otherwise Argentina
would be booming.
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[–]Eggplant-Imaginary 2 points 1 day ago
GDP not god auto correct over powered
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[–]marcusmv3 1 point 12 hours ago
Just because current growth figures are lower than gold-standard-era
figures does not negate my statement.
When you operate a gold standard, your potential GDP growth is capped
by the growth rate of your gold reserves.
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[–]Ima_Wreckyou 3 points 1 day ago
Even with the gold standard there where forms of credit money. The
difference was it didn't pretend to be something other than credit
money.
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[–]Ken-The-Gent 4 points 1 day ago
Well said!
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[–]nutyourself 2 points 1 day ago
The printing of money via governments to bail out failing
companies, banks, and their own asses is the issue.
Sounds like you know what you're talking about so let's be even more
discerning. I would add:
There's nothing wrong with government printing of money, it too is an
important part of our economy, and if done right (see japan, MTT,
etc..) it can really help grow the economy.
The second part of your statement I do agree with, to some extend.
Bailing out bad actors is questionable. In some cases, it's very true
that if banks were allowed to fail in 08, it would've been
catastrophic in a way most people can't fathom. In other cases, we
should let the free market / capitalism play out and let some shit
fail.
IMO, if you get bailout in order to prevent a nation (or world) wide
catastrophe.. you're done, your institution is now government owned.
Banks that failed in 08 should've been made public.
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[–]Impressive_Remote217 1 point 1 day ago
Not really printing the money , only 2.2trillion in physical
circulation, just adding digits to their digital ledgers . I'm
personally hoping for a future society where money or crypto not
needed. I think it's possible. Infrastructure work divided by
population basically.
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[–]Mintleaf007redditor for 3 months 0 points 23 hours ago
There's nothing wrong with government printing of money
lol.
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[–]Umpire_State_Bldgredditor for 3 months 2 points 1 day ago
Actually, in both cases such "money printing" is a form of theft, and
you are one of the victims.
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[–]Shield4SI 22 points 1 day ago
No, it's not. I can take a loan and start up a BTC mining operation.
Therefore, I've taken that loan and created something productive. As
operations and "actual wealth" increases I pay back the loan,
destroying the created capital.
Same for a family that can't afford to buy a car outright. They take a
small loan to buy a car. The car allows them to commute to a job,
which allows them to be productive in society, creating wealth for the
business, themselves, and the community.
You stated in another comment, "No one can create actually wealth, eg,
cars with loans." That statement is false. Take an easy example Elon
has taken loans, created an entire satellite network, and kick-started
the electric car industry. This will have far reaching affects in
wealth generation for the entire world.
I don't like banks anymore than most people, but a loan is simply
borrowing from your own future since it needs to be repaid. Actual
printing of money via government bodies is very different.
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[–]nottobetakenesrsly 7 points 1 day ago
Refreshing.
Almost every sub (for or against Bitcoin), gets money as it currently
exists... so terribly wrong.
Not these comments though.
As an aside, investopedia is ok, but gets a lot of stuff wrong too.
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[–]confirmSuspicions 2 points 1 day ago
Some yes, but the top comment says something wholly inaccurate.
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[–]nottobetakenesrsly 5 points 1 day ago
I'm speaking to that correction. Not the first post.
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[–]broadmind314 1 point 15 hours ago*
I don't expect to change your mind but hear me out. Banks lending out
money also has an effect on the money supply and the value of currency
in circulation. When a bank makes a loan, it creates new money by
crediting the borrower's account with the loan amount. This increases
the overall money supply and has the same inflationary effect as money
printing by a central bank. In this way, bank lending can also be
considered a form of indirect taxation or theft, as it reduces the
value of currency for everyone else in the economy. The magnitude on
how much this affects the general population will vary greatly based
on the amount of reserves the bank is required to hold which is
currently at 0%!
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
Yes, I understand loans can support economic growth. However, this
current unchecked growth is stealing from future generations and will
inevitably end badly. It can and will continue to lead to never-ending
inflation, which only benefits those whom spend it first. It's a game
of musical chairs and we are all deaf.
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[–]nottobetakenesrsly 2 points 12 hours ago
Doesn't this ignore loan repayment as the destruction of money? When
it comes to bank lending "permanently" increasing supply, then you
need an ever increasing rate of new loan creation.
The idea is there will always be a fluctuation degree of good
transactions, and there should be a matching measurement at any given
time (money). Bank lending supposedly being the mechanism by which an
appropriate supply is determined.
I'm completely ok with disagreeing with this approach... it's just how
things are. I often think about how inelastic, and/or full reserve
systems will function...
...whenever a monetary system fails to support transactions, a new
system is usually created (almost invariably debt based).
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[–]broadmind314 1 point 10 hours ago
When a borrower repays a loan, the money is returned to the lender.
The bank can then use that money to make new loans to other borrowers,
invest in financial assets, etc. So the person who took the loan out
still has whatever they purchased and the bank has the principal back
plus interest so they can now lend it out again. It has only created
money in this process.
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[–]nottobetakenesrsly 2 points 8 hours ago
the money is returned to the lender.
When I issue a loan, it is created on the spot... I'm not using
pre-existing dollars (I'm using balance sheet capacity). The loan
comprises an asset line on a balance sheet. I need to offset that with
a corresponding liability (could be the deposit if the proceeds are
left in the same bank).
If the rate of lending (more loans, more often) increases, the money
supply increases (and the inverse is true as loans are paid back
and/or rate of lending decreases... money supply decreases).
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[–]broadmind314 1 point 7 hours ago
Your reply is 100% correct. What I disagree with is the statement that
money is destroyed in the process.
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[–]nottobetakenesrsly 1 point 5 hours ago
Perhaps it's just a difference in definitions of money.. (everybody
has a different one)... and supply.
I usually mean "usable units of exchange", loan repayment (the
principal), takes units back out of circulation, and reduces both
sides of the banks' balance sheet.
Oversimplified example:
$50k loan from bank to Bob. Bob had $0k, and now has $50k in his account.
Bank has created an asset ($50k in debt), and has a corresponding
liability ($50k deposit liability).
Bob repays the loan with the same funds the next day. Both sides of
the Bank's balance sheet are expunged. Bob's account goes back to $0,
and the Bank no longer has a $50k asset, or a $50k liability.
Now of course, there's a whole lot more complexity... interest earned,
if the loan proceeds circulate through the economy... but at the end
of the day, the same balance sheet mechanics are in play, and money
mostly exists spread across many balance sheets.
What matters is the rate of lending; if new loans aren't created, the
supply truly does decrease.
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[–]cryptosareagirlsbf 7 points 1 day ago
Therefore, I've taken that loan and created something productive.
What happens if you've taken that loan and NOT created something productive?
What happens if enough people take loans and not create something productive?
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[–]Shield4SI 1 point 1 day ago
That's a personal problem not the loans fault
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[–]cryptosareagirlsbf 3 points 1 day ago
It's a personal problem if it happens with one person's loan.
It's a bank problem if it happens with high enough number of loans.
And bank problems, thus far, have been cured with QE.
And that's worked out great. For some people, at least.
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[–]broadmind314 0 points 1 day ago
Try looking at it from another angle. Money printing can be seen as a
form of indirect taxation or theft because it is hidden. It amounts to
a transfer of wealth from holders of the currency to the central bank
that printed the money.
Those that receive the new money first are able to use it to buy goods
and services before prices have adjusted to the new supply, which
gives them an advantage over those who receive the money later.
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[–]BastiatF 1 point 1 day ago
No bank money creation != no loans
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[–]skviki 1 point 1 day ago
This won’t go through. It’s too abstract for some semi-religious
crypto fans. They understand gold base, but not this.
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[–]suuperfli 1 point 1 day ago
loans are also part of the issue. big corps getting interest-free
loans is also an unfair advantage, gaining via mass inflation theft ad
infinitum
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[–]HumbleBitcoinPleb 1 point 1 day ago
I knew there was going to be a comment like this. And it's freaking UP
VOTED? Are you guys serious? Is this really a bitcoin forum?
How can ANYONE say money created by loans is not an issue?
FFS.
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[–]circleuranus 1 point 1 day ago
It's actually not the bailouts that are the problem either. It's what
those loans are used for. Loans that add value and economy in their
local areas are the backbone of of prosperity. Loans that are used for
mere rent seeking without providing value are the real problem.
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[–]b0x3r_ 1 point 1 day ago
Yes the money is destroyed when the loan is paid back, but the banks
also issue new loans. The banks always have a balance sheet of
outstanding loans which represents new money they created, which in
turn devalues your currency.
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[–]Javelinx65 1 point 18 hours ago
About 92% of money gets created by banks via the lending process so
banks creating currency is the issue with respect to inflation.
Not allowing banks to create money via the lending process doesn't
mean that their could not be mortgage loans or small business loans,
it just means that you can't create the currency to do it. For
instance, you could lend me money to buy a house or finance a business
from savings and no new money would be created. Clearly, if you went
to an equity based lending system, there would be a lot of unwinding
to do in distorted asset prices.
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[–]BuyRackTurk 1 point 13 hours ago
The creation of money via loans isn't the issue
It is 100% of the issue. It is the problem bitcoin is set to solve.
and allows for faster innovation.
It slows innovation and causes malinvestments.
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[–]SupportUnit66 -1 points 1 day ago
Governments don't create money, banks do it. When a government bail
out a bank it increase it's public debt by issuing obligations, these
obligations are acquired by the central bank that print money from
thin air to buy them or to allow commercial banks to buy them.
So the government is now in debt with banks because he bailed them
out. And as soon as government is the representative of the people, we
have been scammed.
The same happens with loans, because a bank become the owner of a
citizen debt without having initial money to loan. Citizens that
prefers to save and don't contract debt are scammed because they see
prices going up and therefore theirs savings losing value.
Luckily Bitcoin fixes this and virtuous hard worker and savers have a
way out from the banking system!
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[–]Shield4SI 2 points 1 day ago
Your covid stimi checks were from the fed who expanded the money in
the system at the push of a button (aka printing money). It wasn't the
banks it was specifically the Federal Reserve who is in charge of
managing the money supply and financial systems full stop.
Yes, banks create money through loans and such financial vehicles.
However, they are not capable of injecting trillions into the economy
that is the fed. You said yourself the central banks, which is the
fed, prints money out of thin air.
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[–]jonnyd93 0 points 1 day ago
Not necessarily true, banks make money on the interest of those loans.
which, in turn, does increase money supply by increasing debt.
Especially bc of fractional loaning, banks don't need to have the
money on hand to loan out, so for them they can print free money to
loan, then collect the profit of interest.
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[–]mikhailsharon99 0 points 1 day ago
Of course is an issue because it meant that inflation will always
occur even at the basic level. And what is inflation? The creation of
money. That's it.
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[–]eyescream187 0 points 1 day ago
Not sure if I agree. When I use a credit card and buy something for
$10,000. I pay back over time. When the balance is paid off, I still
have $10,000 credit line available. The bank is taking my payments, I
don't think they're destroying any money. The bank is taking the money
I pay them and loaning it out again.
This link is to a song with intro and outro from zeitgeist: the movie.
https://youtu.be/1scnky6_FXI
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[–]asaltandbuttering 0 points 1 day ago
The alternative is not "no loans". It's "not creating new money out of
thin air when issuing a loan". You're presenting a false dichotomy.
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[–]funkybeatz911 0 points 1 day ago
What about the 150 years of American history before the Fed where we
had loans on the gold standard and new money wasn't conjured out of
thin air? No innovation then? What do you call the railroads? What do
you call the industrial revolution?
What about going from ravaged by the civil war to the world's leading
economic power in 15 years? That was all without the creation of money
via loans.
What makes you think that capital is "destroyed" once tho loan is paid
back? So the interest paid on that loan is "destroyed" too then,
right?
Please take a step back and examine how you've been led to believe
this because the idea that creating new money through loans isn't an
issue is utter brainwashing
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[–]Shield4SI 1 point 1 day ago
No, I won't, but thanks for the comment. Feel free to take your own
step back from that shitty comment and examine yourself and what the
quantity of life was like back then and who really built the
railroads. Cool, you know about interest. No one loans for free.
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[–]mushambani 31 points 1 day ago
They dont create money, they create debt
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[–]Exit-Velocity 27 points 1 day ago
It does create money, on paper. Its called fractional reserve banking.
For example, a bank is able to lend me a house worth $500,000 with
only $50,000 held in reserve. It creates $450k of economic activity
worth of money that doesnt really exist. More info -
https://youtu.be/8xzINLykprA
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[–]EffyewMoney 8 points 1 day ago
There's no reserve requirement since March 2020.
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[–]lehcarfugu 2 points 20 hours ago
The bank can't literally print money
They can lend your money out without backing it
If my friend gives me 5 dollars, and then I loan 4 dollars to a
different friend, I am doing fractional banking. Did I create money?
No
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[–][deleted] 18 hours ago
[deleted]
[–]lehcarfugu 1 point 18 hours ago
I'm well aware of both concepts
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[–]broadmind314 1 point 13 hours ago*
Yes they can and no you didn't because your loan is not included in
M1, which is the aggregation of money circulation in a nation's
economy.
M1 = cash in circulation + bank deposits
When a bank makes a loan, it credits the borrower's account with the
loan amount, effectively adding to the M1 money supply.
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[–]lehcarfugu 1 point 12 hours ago
m1 money supply is not "creating money", as we have just demonstrated
it is a flawed metric
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[–]broadmind314 1 point 11 hours ago
It may have its limitations, but it's not a flawed metric in the
example you gave. M1 is directly related to the creation of new money
in the economy via the money multiplier effect.
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[–]lehcarfugu 1 point 11 hours ago
you are arguing semantics
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[–]broadmind314 1 point 10 hours ago
I'm not interpreting it any further than the definitions state.
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[–]vwite 14 points 1 day ago
This. Only the federal reserves creates, a.k.a "prints" new money
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[–]broadmind314 1 point 11 hours ago
This is incorrect, unless you mean physically printing bank notes.
Please read "Fractional Reserve Banking Process".
https://www.investopedia.com/terms/f/fractionalreservebanking.asp
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[–]vwite 1 point 11 hours ago
so as the original commenter said, they create debt, not new money
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[–]broadmind314 1 point 11 hours ago
The debt itself is not considered money. However, through fractional
reserve banking, the bank can use the borrowed debt as a basis to
create new money. The bank records the loan as a deposit in the
borrower's account, and this deposit can then be used as collateral to
issue new loans to other customers. In this way, the original borrowed
debt can be leveraged to create new money in the form of additional
loans and deposits.
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[–]vwite 1 point 11 hours ago
so debts can be leveraged to create even more debt, not more money,
just like GUH guy (/u/ControlTheNarrative) created more margin with
the infinite margin loop, that does not mean he was creating money,
just more debt
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[–]broadmind314 1 point 11 hours ago
Do these loans buy real goods and services? If the answer is yes, then
the money supply is being increased by this process.
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[–]vwite 1 point 11 hours ago
GUH guy could also buy more assets (Apple stock), doesn't mean he can
"print" trillions to buy the whole company
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[–]broadmind314 1 point 10 hours ago
I don't know what you mean when you say GUH guy (I clicked on the
linked username and got an error). Theoretically, banks can infinitely
increase the money supply though fractional reserve banking at a 0%
reserve requirement. They are ultimately limited by the market demand
for loans and capital requirements set by regulators.
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[–]Cautious-Bobbylee 2 points 1 day ago
Hello how do u think money is made. It’s created and then dented thru
t bills. And also frantional reserve banking which creates the money
multiplier effect
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[–]Odd_Party 1 point 1 day ago
Thanks, or I woulda had to post this myself.
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[–]SlapHappyRodriguez 6 points 1 day ago
This is talking about fractional reserve banking; not just printing money.
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[–]cndvcndv 5 points 1 day ago
Some objections to some top comments:
"Money is destroyed when the loan is paid back."
Although this is right, the issue is the delay and the continuity.
When people keep getting loans to pay back in a few years, at any
point in time, the money supply is artificially inflated. The fact
that the loans are paid back is only relevant in the sense that the
effects of loans can be reverted in a few years if banks no longer
give loans.
Another argument is "It enables innıvation and growth."
I agree that people with good ideas should be allowed to create
businesses without having to save money for decades. That doesn't mean
the loan they get should be created from thin air. Wealthy people can
lend their money for risk-free interest or directly invest in
innovative businesses. When money supply is inflated just to
incentivize people to innovate, as a side effect, people can't hold
money to save a portion of their wealth without losing value.
Therefore it disincentivizes saving and makes it more difficult and
risky to have emergency funds.
Even if creating money from thin air had a positive effect on the
society overall, it's still ethically questionable to steal from
people through inflation.
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[–]HumbleBitcoinPleb 2 points 10 hours ago
THANK YOU!
Why is this so hard to understand?
People defending the nonsense of money creation through loans will end
up buying bitcoin at the price they deserve: 10 million or more.
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[–]please_take_one 2 points 7 hours ago
The fact that the loans are paid back
Many loans are never paid back. Unpaid debt gets bought by central
banks during bailouts, and sits eternally on the central bank balance
sheet, never to be paid off, and merely sitting there as a statistic--
a slice of the ever increasing national debt.
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[–]Ur_mothers_keeper 22 points 1 day ago
This simplification is misleading.
If you loan me 40 bucks, you've just created 40 bucks. You've got a
$40 asset that is my debt to you, and I've got a $40 liability to you
and $40 bucks in my pocket. Until I pay you back, this appears in the
economy as an additional $40. There's no way around this, anyone can
create debt with anyone else, it cannot be stopped, and fractional
reserve isn't the source of this dynamic. It is the cause of debt
cycles in the economy.
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[–]BastiatF 3 points 1 day ago
The difference is that, unlike for banks, your IOUs don't function as
money. We can't exchange your IOUs for goods and services.
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[–]please_take_one 1 point 8 hours ago
Exactly.
Banks literally just increment a number in their database when they
give a loan. They don’t decrement any “reserve” account anywhere.
(This is empirically proven, see the work of economist Richard Werner)
It’s only because we all play along with the illusion that
bank-created book money (which is simply magically created IOUs) is
accepted as “money.”
To make it yet more farcical:
Book-money (dollar signs in bank accounts) aka Giralgeld is NOT
legal tender, but everyone just accepts it
In most countries you CANNOT pay your taxes with cash, which is
the only legal tender. You can only pay your taxes with book-money
which is the electronic magic money created by private banks, and is
not recognized by the state collecting said taxes as being legal
tender!
It is actually a legal gray area that is in no country in the world
actually spelled out explicitly. This collecting of taxes in
book-money is obviously a very strong tacit approval, but it is
nowhere spelled out in law what any of this really means or how it
ought to be. It is simply a gray area system/convention. Banks are not
given this power to create book-money by law, nor is it forbidden.
Then one has to wonder-- If it is not legally spelled out, why can’t
one of us individuals just start creating book-money the way banks do?
And the answer is really just that it’s a club, and you’re not in it.
And if you want to get into the club, you will start at the bottom
with some tiny-ass community bank that will never compete with the
bigger players in any way.
Effectively society is divided between two classes: those who have the
power to create money, and those who don’t. And this division is not
in any way democratically legitimized. Democracy and rule of law are
therefore patently fake.
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[–]Ur_mothers_keeper 0 points 1 day ago
That's not strictly true. This debt to you counts as part of your net
worth, so when the amount of money in circulation is assessed, your
illiquid IOU still counts as well as the 40 bucks your friend put in
circulation. You can get loans against your net worth.
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[–]BastiatF 2 points 21 hours ago
When you make a loan, M2 doesn't increase. When banks make loans, it
does. What you are talking about is using your IOUs as collateral.
It's irrelevant because it doesn't increase money supply.
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[–]Ur_mothers_keeper 0 points 18 hours ago
Absolutely it does when you make loans.
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[–]BastiatF 2 points 18 hours ago
Absolutely not. Your IOUs aren't money. They are not part of M2.
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[–]Ur_mothers_keeper 1 point 16 hours ago
No, but when you measure the money in an economy, you're measuring net
worth and circulating supply. When you loan out some money this shows
up on the supply side of money (because money can be seen as another
commodity, just that it is the unit of account) and it presents itself
as price inflation. Just because your credit is illiquid doesn't mean
that it has no effect, the credit side is illiquid but the debt is
not, it is being spent by the borrower and has an inflationary effect.
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[–]BastiatF 2 points 16 hours ago
You are confusing wealth and money. There is a lot more wealth than
money in existence. You should look at the definition of M0-3, "net
worth" is absolutely not part of it.
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[–]Ur_mothers_keeper 1 point 15 hours ago
I am very clear on the distinction between wealth and money.
Look dude, I'm not talking out of my ass, I'm trying to explain
somethingthat is already well understood. I'm not defending fractional
reserve, fiat or any of that. I'm just explaining the impact of
private debt on the supply and demand dynamics of money. Private
credit absolutely does have an inflationary impact on money supply, it
is the cause of the short term debt cycle.
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[–]BastiatF 2 points 13 hours ago
Look dude, you were claiming that loans from non-bank entities create
new money. I simply corrected that misconception.
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[–]10yearsnoaccount 4 points 1 day ago
But in that case I had 40 bucks to loan you. The bank only needs to
have $4 yet you get $40 cash in your hand. That's a pretty fundamental
difference....
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[–]Ur_mothers_keeper 4 points 1 day ago
This is a large misunderstanding of fractional reserve that is untrue.
The bank has 100k on deposit from depositors. It can loan out 90k of
that, provided a 10% reserve requirement, not 1,000,000. Once you
understand this common misconception all the rest will fall into
place.
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[–]Mintleaf007redditor for 3 months 1 point 23 hours ago
thats not a common misconception... the people who deposited their
money still have access to their funds.
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[–]BastiatF 6 points 1 day ago
Reserve requirements have been abolished in most advanced economies.
So the bank needs $0 to loan you $40.
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[–]perfectlyboiledegg -1 points 1 day ago
No they haven’t lol
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[–]BastiatF 0 points 1 day ago
Yes they have lol. US, Canada, the UK, Australia, New Zealand, Sweden
and Hong Kong. That's most of the advanced economies by GDP. Eurozone
is now down to 1% and on it's way to 0.
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[–]perfectlyboiledegg 2 points 1 day ago*
A quick google search pulls up capital requirements in Hong Kong and
Europe. What are you talking about?
Here:
https://www.hkma.gov.hk/eng/key-functions/banking/banking-legislation-policies-and-standards-implementation/capital/
https://www.delphix.com/glossary/basel-iii#:~:text=Minimum%20Capital%20Requirements&text=There%20is%20also%20an%20extra,financial%20constraints%20when%20paying%20dividends.
https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/CAR22_chpt1.aspx
https://www.fi.se/en/bank/Capital-requirements-for-swedish-banks/#:~:text=The%20minimum%20own%20funds%20requirement,market%20risks%2C%20and%20operational%20risks.
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[–]BastiatF 2 points 1 day ago
That's capital requirements, not reserve requirements 🤦♂️
Learn the difference: https://en.m.wikipedia.org/wiki/Reserve_requirement
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[–]perfectlyboiledegg 1 point 1 day ago
Ok but your comment implies banks don’t have to hold any cash when
capital requirements clearly mean they are required to.
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[–]BastiatF 1 point 20 hours ago
They need to hold capital, not cash
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[–]10yearsnoaccount 0 points 1 day ago
Well then the original isn't misleading at all then.... bring on the
next "worst crash in history how could anyone have seen this coming"
event.
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[–]bitsteiner 1 point 1 day ago
anyone can create debt with anyone else, it cannot be stopped,
This is not allowed by regulation. Only commercial banks members of a
central bank can do that. It is their privilege. If a non-bank or a
private would do that on a regular basis, it will get fined or even
jail. Credit creation results in fractional or zero reserve.
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[–]perfectlyboiledegg 1 point 1 day ago
Any depository institution can borrow money from the fed. Also,
literally anyone can loan money otherwise bitcoin and all of fintech
would be illegal. The online “banks” that lend to consumers all just
borrow money from commercial banks, and they are all losing money
because they are not required to maintain capital allocations that a
bank would.
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[–]bitsteiner 1 point 1 day ago
Sure you can make private loans of whatever currency to someone else,
but you can't create credit out of collateral like fractional reserve
banks do.
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[–]perfectlyboiledegg 1 point 1 day ago
What is this rocket lawyer service for then? Am I misunderstanding
you? I have personally underwritten loans where I could see someone’s
wealth included a loan from an individual. Also what do you mean by
regular? How do you think angel investing works?
https://www.rocketlawyer.com/family-and-personal/personal-finance/personal-loans/legal-guide/lend-money-to-family-and-friends-the-smart-way#:~:text=You%20can%20use%20a%20legally,the%20details%20of%20your%20loan.
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[–]bitsteiner 1 point 1 day ago
Difference is that you can lend existing money against collateral, but
you can't lend non-existing money against collateral like fractional
reserve banks do.
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[–]perfectlyboiledegg 1 point 1 day ago
It’s weird that you’re arguing what makes money exist on a bitcoin
sub. I could borrow money from the bank and then loan money, and the
bank wouldn’t care or know unless I defaulted.
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[–]bitsteiner 1 point 1 day ago
Sure you can do that. When you borrow $100 from a bank and lend that
$100 to someone else, you have $0 left - the money supply hasn't
changed. If a Bank has $100 in deposits and makes a loan of $90, the
deposit of $100 is still there plus a deposit of $90 was lent into
existence - the money supply has increased from $100 to $190. That is
the difference.
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[–]perfectlyboiledegg 1 point 1 day ago
Unless I make a business and sell equity, then I make a money out of a
multiple of EBITDA. This is the same principal, but a bank would do it
for a modest interest rate rather than a portion of ownership.
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[–]bitsteiner 1 point 1 day ago
If you sell, someone else buys and money changes hands. I don't see
how that increases the money supply.
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continue this thread
[–]rabbitlion 1 point 1 day ago
I'm fully allowed to take my $40 and lend it to someone else, thereby
"creating money".
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[–]bitsteiner 1 point 1 day ago
Agreed, but that doesn't create money, since you give your money to
someone else. The amount of money in the economy does not change. Only
the central bank or commercial banks can increase the monetary
aggregates.
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[–]rabbitlion 1 point 1 day ago
It's exactly how commercial banks create money. They don't have a
magic button that summons money out of thin air, they just
artificially inflate the money supply with fractional reserve banking.
Only the central bank can truly create money.
You can easily see this difference if you look at bitcoin where doing
fractional reserve banking would inflate the money supply exactly the
same way that banks do with US dollar. Since there's no central bank
in bitcoin, you cannot truly print new ones (outside of mining), but
you can expand the artificial supply.
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[–]bitsteiner 1 point 1 day ago
Yes, you can fractional reserve anything, but is fraud if non-banks do it.
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[–]rabbitlion 1 point 1 day ago
No, it's not. If I borrow $100 from Adam it's perfectly legal to lend
$90 of those to Bill, only reserving a fraction of Adam's "deposit".
It would even be legal for me to spend the $100 on booze and have
nothing reserved at all.
Now, if I want to start offering banking services to the general
public on a larger scale and be able to borrow money directly from the
fed, naturally I'd need some sort of license.
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[–]bitsteiner 1 point 1 day ago
That is not fractional reserve lending. After lending $90 you have $10
only left, you can't spend $100.
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[–]rabbitlion 1 point 1 day ago
That's exactly how it works for banks too though...
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[–]Mintleaf007redditor for 3 months 2 points 23 hours ago
lol imagine if banks couldnt create money. the ultra rich would be
very poor very fast.
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[–]bitsteiner 1 point 1 day ago
Contrary to common belief and descriptions in text books, there is
some good education on explaining how commercial banks create
deposits: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
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[–]HumbleBitcoinPleb 1 point 10 hours ago
Dude.
If you deposit $100 in the bank and the bank loans $90 to Michael,
there is now $190 in the economy.
You can spend $100 on Amazon and Michael can spend $90 on Walmart.
The bank created $90 out of thin air.
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[–]Ur_mothers_keeper 1 point 1 day ago
It's illegal to loan your buddy 20 bucks? Think before talking man.
And even if it were, people would still do it. it would still happen.
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[–]bitsteiner 1 point 1 day ago
Didn't say it was.
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[–]Ur_mothers_keeper 1 point 1 day ago
this is not allowed by regulation
Are you hypoxic?
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[–]bitsteiner 2 points 1 day ago*
If you loan your buddy $20, you give him $20. Nothing gets created,
your claim doesn't add to the money supply, it remains in a closet and
is essentially worthless.
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[–]SmoothGoing 27 points 1 day ago
Loans are not for nothing. They pay for cars, and houses, and business
expansion, etc. And loans need to be paid back. Paying back loans
destroys money then. Everyone conveniently forgets that.
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[–]Mintleaf007redditor for 3 months 2 points 23 hours ago
it destroys the money at a later time. this is very different. if i
had a trillion dollars today and had to pay it back a year from now i
could make vast amounts of wealth. or if i lost it then the bank gets
a bailout.
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[–]Socialists-Suck 6 points 1 day ago
Technically it’s not “money” it’s debt. Money needs to be tied to work
i.e. production for it to be money. What we have here is a pyramid
scheme.
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[–]Bitcoin_Maximalistredditor for 3 months 2 points 1 day ago
Loans are not for nothing. They pay for ... and houses
https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
what a beautiful system
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[–]SmoothGoing 1 point 1 day ago
It's how they made money. Originate mortgage. Sell it. Pocket
immediate $500 bucks or whatever. Incentive to ask for good credit
worthiness is quite low. If they couldn't create a MBS and dump it on
others they wouldn't issue mortgages to everyone with a pulse.
Now also don't forget who lived in a house better than yours and which
they knew they couldn't afford. "Those" consumers. The ones who took
advantage of easy credit and then defaulted. Plenty of blame to go
around but it's not the bank's fault deadbeats couldn't pay what they
agreed to.
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[–]please_take_one 1 point 8 hours ago
Plenty of blame to go around but it's not the bank's fault
deadbeats couldn't pay what they agreed to.
But the bank created money in giving out that loan. Money is supposed
to represent the economic value generation effort of the individual
laborer. When banks recklessly devalue money, they are stealing from
laborers who can only recoup the cost of their labor in said money.
I don’t blame the bank necessarily. It’s just foolish of us to
participate in this system. But I would get laughed at if I went to my
HR/accounting department and asked to be paid in legal tender (cash)
rather than book-money. Let alone to be paid in bitcoin.
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[–]btc-beginner 1 point 20 hours ago
That is nothing. The big bucks are made when big companies, buy other
big companies. Usually with the type of super low to zero interest
rates, that slowly to never gets paid back.
Different rules for different players.
Here is a great explanation :
https://youtu.be/EC0G7pY4wRE
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[+]confirmSuspicions -7 points 1 day ago
It doesn't destroy it. If they didn't want it you wouldn't have to pay
it back lol. Did you think your credit card company is just lighting
your monthly payment on fire? Lmao.
Even to give you the benefit of the doubt, the fed rolls assets off of
its balance sheets, but bank of America or something isn't
volunteering their assets to be burned. That's an insane
misunderstanding.
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[–]SmoothGoing 5 points 1 day ago
If issuing loans creates money paying off loans destroys money. No it
was not set on fire. But they didn't sit there with a crayon drawing
$100 bills either to create it.
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[–]edgestander 2 points 23 hours ago
This is conversation is literally the most aggressively r/bitcoin
discussion I’ve seen. You post the objective truth of how money
creation/destruction works and get “called out” for misinformation.
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[+]confirmSuspicions -9 points 1 day ago
At a policy level you are nearing some technically correct levels of
almost being right. But you're not right. Accept the correction
gracefully. You're spreading misinformation.
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[–]ertaisi 3 points 1 day ago
Your correction was like 30 words and clearly didn't win them over.
You've got some hubris declaring the debate concluded and arrogantly
telling them to sit down and let you win. Your position is now weaker
to most readers than when you started. You would have been better off
just not responding again.
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[–]SmoothGoing 1 point 1 day ago
I'm ok with that. It's all just opinions of randoms on the webs.
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[+]confirmSuspicions -6 points 1 day ago
You're okay with being wrong as long as you got upvoted first. Great
contribution to society.
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[–]SmoothGoing 5 points 1 day ago
https://www.google.com/search?q=paying+off+loans+destroys+money
Accept the correction gracefully. You are digging yourself in a hole
for no reason.
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[–]confirmSuspicions -2 points 1 day ago
Yup just act like you know what you're talking about so you can say
you got something from your college education.
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[–]SmoothGoing 5 points 1 day ago
Downvote me then. I don't owe you anything.
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[–]confirmSuspicions 1 point 1 day ago
I don't use downvotes to emotionally punish someone I'm not a child.
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[–]P_e_a_s_h_o_o_t_e_r 1 point 1 day ago
You're completely wrong dude. Repaying the loans destroys the money,
or rather the debt that is considered money.
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[–]Sneudles 0 points 1 day ago
And every loan is always repaid, especially the ones listed on the us
national debt clock.
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[–]P_e_a_s_h_o_o_t_e_r 1 point 1 day ago
How is that relevant to the discussion whether paying back loans
destroys money or not?
Also, the government actually repays loans. They just issue new loans
to cover repaying past loans. If they didn't repay loans they wouldn't
be getting the best interest rates.
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[–]Sneudles 1 point 1 day ago
because it brought you to bring up the money created from interest too.
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[–]Umpire_State_Bldgredditor for 3 months -1 points 1 day ago
There is mere "money" and then there is "actual wealth".
Nobody can create actual wealth (eg, "cars") by creating new "money"
within the fractional reserve banking system.
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[–]SmoothGoing 2 points 1 day ago
Loans are backed by collateral borrowed against. Your landlord's bank
owns the house you live in. You pay your landlord's mortgage. He gets
actual wealth. You get a roof to stay under.
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[–]Umpire_State_Bldgredditor for 3 months 2 points 1 day ago
They can "print" all the money they want, but they cannot "print" any
actual wealth.
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[–]HighlySuccessful 1 point 1 day ago
Not so simple. Example: Business gets a loan to expand it's businesses
and pay employees, a guy buys a second house with a mortgage, and
rents it for x2 of what he pays monthly for the mortgage. The employee
rents that house for 10 years, but eventually his company goes bust.
The person renting the house has accumulated wealth.
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[–]life_is_enjoy 0 points 1 day ago
I don’t have a lot of knowledge about this. My question is … so do
banks gain interest on the money that never existed in the first
place? Even when the money gets destroyed after the loan is paid back,
the interest remains….?
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[–]SmoothGoing 1 point 1 day ago
It does but the interest banks gain is offset by losses when someone
does not pay. Some portion of borrowers always defaults.
The money "never exists in the first place" in a similar way as a lien
(hold) on the car didn't exist. Car exists. Bank pays for car and
holds the title. Dealership gets paid. Borrower drives the car and
pays back monthly to the bank. Loan is closed, money is destroyed,
lien is dissolved.
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[–]rabbitlion 1 point 1 day ago
The money existed all along of course. Someone deposits $100 and gets
a 1% interest while someone else borrows $90 and pays a 2% interest.
After 1 year the borrower pays back $91.8 and the depositor withdraws
his $101. All in all, the bank has earned $0.8 due to the difference
in interest rates.
In practice, the $90 they lent out is probably going to be
re-deposited by someone else and re-lent and re-deposited and so on,
so they can earn on the interest rate difference several times.
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[–]edgestander 1 point 23 hours ago
Loans are assets to banks. When a loan gets repaid a bank losses that
asset and replaces it with cash which if invested gains interest, at
least the overnight rate. The money is destroyed because before being
paid off the bank has the mortgage asset AND the customer had a
corresponding cash amount now only the bank has that cash.
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[–]clue5tickredditor for 3 months 6 points 1 day ago
Before you all start arguing, how about explaining what you mean by
"money". Show us the legal definition of the USD, and what it is
measured against.
Those who go with "everybody knows" can go back to arguing.
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[–]confirmSuspicions 3 points 1 day ago
Yup most of the disagreements people have on this topic are what
constitutes 'money' being created. Well some call it debt. And that
definition happens to make a lot more sense than saying money.
We should really be talking about the velocity of that issued debt
because the rest is a waste of time. Someone spends 1 minute on Google
and finds a supporting paragraph for their argument and think they're
right when there is an opposing opinion on the very next search
result.
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[–]samz22 5 points 1 day ago
Guess what buddy you can have a credit card and when you swipe it…..
Guess what your making your own money 🤣
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[–]Mintleaf007redditor for 3 months 2 points 23 hours ago
if the credit card companies had to have the collateral to back up the
card limit then it wouldnt be creating money but youre right it does.
but its more the bank creating it not you.
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[–]billybl4z3 2 points 1 day ago
normal banking in ohio
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[–]P_e_a_s_h_o_o_t_e_r 2 points 1 day ago
Your picture is already incorrect. It says
That loaned money, in turn, gets deposited back into the banking
system where it gets loaned again...
That's the money multiplier theory but it is incorrect. How money is
created and common misconceptions are explained here.
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[–]HugoJP 1 point 18 hours ago
Yes it's much worse because they are not constrained by their amount
of reserves, just by the rate set by the central bank that determines
how profitable it is to make loans.
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[–]P_e_a_s_h_o_o_t_e_r 1 point 18 hours ago
Well, there's also regulation that dictates how leveraged they can be.
But ultimately the central bank can control how much money is in the
system just by the interest rates (short term interest rates directly
and long term interest rates with QE).
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[–]perfectlyboiledegg 2 points 1 day ago
This is why banks are regulated to allocate capital in proportion to
their loans.
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[–]thedrearyblather03 2 points 15 hours ago
In the risk management literature, bank equity is often called
economic capital, and the process of selecting the amount of equity in
the bank's capital structure is called capital allocation.
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[–]perfectlyboiledegg 1 point 13 hours ago
Yes and every regulating agency has different requirements and tiers
for the %/tiers.s
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[–]min11benja 2 points 1 day ago
(A better answer)
Do banks create money? -Does the pope shit on its hat? Yes of course,
buy Bitcoin.
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[–]luckydayjp 2 points 18 hours ago
Don’t people take margin loans on their crypto too?
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[–]Vivid-Life-6202 2 points 1 day ago
In today's world, it turns out that banks work against people. That is
why it is worth joining the crypto
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[–]sickpeltier 1 point 1 day ago
The answer makes no sense.
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[–]realitycheckmate13redditor for 6 weeks 1 point 1 day ago
so?
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[–]MandelbrotFace 1 point 1 day ago
Yes money is created when it's loaned but it's also destroyed when
it's paid back. That's the bit that's missing here
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[–]daOyster 1 point 15 hours ago
So what happens to the interest that accrued on the loan? Does that
get magically destroyed too or baked into their numbers?
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[–]MandelbrotFace 1 point 13 hours ago
The interest is kept by the banks as their profit for the service.
Banks don't lend out other people's money or their own money. They are
permitted to create and destroy money as loans are made and repaid.
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[–]richmoney46[S] 0 points 1 day ago
For everyone disproving me I know this is an oversimplification,
however the spirit of the argument for Bitcoin is still here. Thanks
for the karma everyone!
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[–]JosePinPanPun 0 points 1 day ago
banks are monopolising scam hah but when anyone else do it its a bad thing lol
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[–]Exciting-Policy-8396redditor for 5 weeks 1 point 1 day ago
I’m no economist, but is the reason inflation doesn’t track money
supply because the “velocity” (aka it gets held up somewhere and
doesn’t make it to the masses)?
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[–]P_e_a_s_h_o_o_t_e_r 4 points 1 day ago*
No, the velocity of money is something different.
It's a measure for how many times the money is spend to buy goods or
services in a certain time period, usually a year.
It's complicated to explain how everything works, but here is
explained how money is created and inflation happens.
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[–]Exciting-Policy-8396redditor for 5 weeks 1 point 1 day ago
Thanks for the link. I think I’m still struggling to understand the
nuanced relationship between inflation and money supply. Would it be
accurate to say inflation is caused by money (or debt) being created
that isn’t paid back (unsuccessful business, etc)?
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[–]P_e_a_s_h_o_o_t_e_r 1 point 1 day ago*
People spending money on goods and services is an upward pressure for
the prices of these goods and services and thus inflation. If more
money is created, (all other things equal) people and businesses will
have more money to spend on goods and services. So more money is
indirectly an upward pressure for inflation.
Although other things matter as well, like the velocity of that money.
If the velocity is high this means the "turnaround time" of money is
shorter AKA each dollar is spent more times on goods and services
during a year. Someone's expenses is someone else his income, and he
might spend this on goods and services as well. This happens multiple
times in a year. So the velocity of money is a measure of how many
times that same dollar is on average used to buy good and services
during a year. This will thus also influence inflation as each time
something is bought it's an upward pressure for the prices. A lot of
money creation but a low velocity of that money will have a lower
upward pressure on inflation than a lot of money creation with a high
velocity of the money. In Japan for example money supply has been
increasing a lot in the past, yet they've experienced long periods of
deflation and a big recession as a consequence.
There're a lot more things to consider to get the full picture. The
paper I've linked in my previous comment explains much more of it but
it's not the easiest thing to understand. It's useful to read it
several times until it clicks.
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[–]Commercial-Ticket442redditor for 1 week 1 point 1 day ago
Good evening everyone beautiful day lovely weather we’re having
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[–]WilsonFx1997 1 point 1 day ago
😅money is taken by those who have financial knowledge
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[–]Relictasredditor for 1 week 1 point 1 day ago
This is why I am so on board with bitcoin. You Cannot print more bitcoin. EVER!
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[–]Grodgers73 1 point 1 day ago
Do not take out a loan then. Smh.
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[–]mikedensem 1 point 1 day ago
It’s the creation of “debt”.
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[–]danpaq 1 point 1 day ago
Why do the banks keep needing to be bailed out?
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[–]Beginning-Reply6730 1 point 1 day ago
Not quite
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[–]wildrabbitsurfer 1 point 1 day ago
why they need to loan if they create ? those writers are stupid
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[–]dannywitz 1 point 1 day ago
I’d like to be skeptical and say this isn’t the full story, or it’s
out of context, but I can’t. This is spot on.
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[–]daveyboy1201 1 point 1 day ago
They are the legal loan sharks basically, except they can't come to
your doorstep and beat the crap out of you for not paying.
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[–]Pastichas 1 point 1 day ago
Why you do not explain, how government makes benefits payments? Bla bla bla bla
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[–]DBNodurf 1 point 1 day ago
And they use our signature to create it…
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[–]Osamzs914 1 point 1 day ago
Aren’t they using customer funds to loan out these monies?
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[–]PeacefullyFighting 1 point 1 day ago
I remember seeing a breakdown of how much money can be created from
$100. I think this is temporary suspended but typically banks need
about 10% of deposited funds as reserve. So it goes like this (forgive
me if I mess up the math.
$100 deposited, $90 is created $90 deposited, $81 is created $81
deposited, $74 is created $74 deposited, $66 is created
I'm going to stop here but the pattern should be clear. We're not even
half way though and already created $311.4 from a single $100 deposit.
Obviously in reality there are a lot more factors at play but this
scenario is 100% possible
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[–]bitsteiner 1 point 1 day ago
Correct except that it doesn't get loaned again. Why would banks do
that when they can easily create money?
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[–]Wild-Opposite-2827 1 point 1 day ago
getbitcoin
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[–]Sherbear1993 1 point 1 day ago
bitcoin’s true value will be clear to the sheep after the Bear market
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[–]babypho 1 point 1 day ago
Proof of work
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[–]Itchy_Jeweler 1 point 1 day ago
Fractional banking also helped to rob people as well. In my opinion
one of the worst financial invention EVER!
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[–]AmbitiousDistrict374 1 point 21 hours ago
It's called fractional reserve banking,
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[–]qbits1234redditor for 6 days 1 point 21 hours ago
Banks cannot create money!! They use theoretical leverage to loan out
more than their cash deposits. This how we scale .
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[–]FreeArt85 1 point 20 hours ago
A perfect system. Let’s create a smart contract for that.
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[–]libertyg8er 1 point 15 hours ago
How would that be any different if people used Bitcoin to create loans
instead of dollars? Wouldn’t there essentially be more Bitcoin than
there actually is for accounting purposes in that scenario too?
Debt capital is still capital. That is why assets = equity + debt.
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[–]likethis999 1 point 14 hours ago
Legal robbery
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[–]BuyRackTurk 1 point 13 hours ago
There is no need to "loan again" if you didnt need money to loan out
in the first place.
The right word is "spent again"
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[–]purple_hamster66 1 point 9 hours ago
This is a vast misunderstanding of what fractional means. It’s like
trying to buy groceries with the future value of a CD. Who is this
Investopedia author anyway?
Banks don’t loan assets, only deposited money (with a little fudge
factor to accommodate timing). Money is an asset but an asset is not
necessary money. Assets include monies owed to the bank in the future,
not money the bank has now. Banks can loan up to 90% of those money
deposits (2023: now 100%), not their assets. There are some timing
issues, that is, they can get the money deposits either before they
loan, or after they loan it (by borrowing temporarily from other
accounts), but they must get the loaned money deposited promptly.
Think of it this way: when you cash that loan check, where do the
dollars come from? It’s not from “owed” money, but from actual
deposits.
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[–]Medical-Junket1576 -2 points 1 day ago
Wait till you learn about FDIC insurance. This is located on the
governments website for all to see. So some back story. In the United
States banks hold roughly 9 trillion in deposit assets. FDIC insurance
covers you up to 250k ( there are stipulations with these such as if
you have multiple accounts or the same parent bank owns multiple
branches ).
The FDIC insurance policy the government has is only for 125 billion
dollars. This means in the result of a financial crisis or bank run,
almost nobody is getting their money back. Instead you become a share
holder or creditor of a defunct bank and are now broke.
My suggestion is to get your money out of the fractional banking
system and into real assets such as gold / silver and Btc.
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[–]soundssarcastic -2 points 1 day ago
The best part of the money they just invented out of thin air is that
they expect interest on it like its a real loan.
Rat bastards the lot of them
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[–]poco 1 point 1 day ago
They expect interest because they are paying for that money.
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[–]SmoothGoing 1 point 1 day ago
Interest pays for risk. When you stop paying on your rusty 2010 Nissan
the bank will repossess it. But it doesn't want the car. It isn't
going to get all of its money back out of it.
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[–]nebra1 -2 points 1 day ago
Isnt this like money laundering?
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[–]rossquincy007 -1 points 1 day ago
Newsflash the fed is privately owned
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[–]P_e_a_s_h_o_o_t_e_r 3 points 1 day ago
People will always complain no matter what. If it was owned by the
government people would say they collude with the government. In fact
people already say that, even though it's privately owned.
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[–]AtheistMantis69 0 points 1 day ago
So using money of an investor to pay another investor. Wasn't there a
name for such endeavors?
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