Did you know .. banks create money out of THIN AIR ?

Please be trolling... it's called quantitative easing. It's taught in Economics GCSE. It was on the BBC website front page a couple of months ago, how quantitative easing was to be increased.

Money is injected into the economy to stimulate it and promote spending, to create a positive cycle.

Reply 3

OP

Original post by xMr_BrightSide

Please be trolling... it's called quantitative easing. It's taught in Economics GCSE. It was on the BBC website front page a couple of months ago, how quantitative easing was to be increased.

Money is injected into the economy to stimulate it and promote spending, to create a positive cycle.

Sorry, I am not talking about that but commercial banks.

When a bank approves your loan the money doesn't come from deposits or the central bank money.. but it is created on the spot.

Don't believe me ? Read this then, from the Bank of England:

"Commercial banks create money, in the form of bank deposits,by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of bank notes. Instead, it credits their bank account with a bankdeposit of the size of the mortgage. At that moment, newmoney is created.

For this reason, some economists havereferred to bank deposits as ‘fountain pen money’, created atthe stroke of bankers’ pens when they approve loans."

http://www.bankofengland.co.uk/publications/documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

(edited 9 years ago)

Reply 4

scrotgrot

16

Original post by xMr_BrightSide

Please be trolling... it's called quantitative easing. It's taught in Economics GCSE. It was on the BBC website front page a couple of months ago, how quantitative easing was to be increased.

Money is injected into the economy to stimulate it and promote spending, to create a positive cycle.

Except the banks just keep it. Quantitative easing should have been given to the people, who will spend it.

Also this has nothing to do with QE. The bank creates money when it makes a loan. The reason it can do this is that the reserve requirement is like 0.001% or even nothing. This makes the system almost infinitely vulnerable to any momentary downturn in the economy. The banks cannot pay their creditors, people cannot pay their rent or wages. Only a few decades ago you could receive your wages and pay rent in cash rather than bank scrip. Today we are tied into the banks, hence too big to fail, hence they do whatever they like and we have to bail them out.

(edited 9 years ago)

Reply 5

Original post by demx9

Sorry, I am not talking about that but commercial banks.

When a bank approves your loan the money doesn't come from deposits or the central bank money.. but it is created on the spot.

Don't believe me ? Read this then, from the Bank of England:

"Commercial banks create money, in the form of bank deposits,by making new loans. When a bank makes a loan, for exampleto someone taking out a mortgage to buy a house, it does nottypically do so by giving them thousands of pounds worth ofbanknotes. Instead, it credits their bank account with a bankdeposit of the size of the mortgage. At that moment, newmoney is created.

For this reason, some economists havereferred to bank deposits as ‘fountain pen money’, created atthe stroke of bankers’ pens when they approve loans."

http://www.bankofengland.co.uk/publications/documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Yep, I knew about that too. 'Real' money is used by banks as a basis to give out loans, as a deposit, but they lend out far more than that to customers - but there's a limit to the percentage they can lend out over and above their 'real' money basis. So it is regulated, but obviously it can be regulated more harshly (as has been the case since the financial crisis).

It gets quite complicated though, so that's probably why the public don't really know what happens.

Reply 6

Original post by demx9

You may have heard the term money doesn't grow on trees.. but it can be magically conjured by a banker...

If this is a surprise for you, then you are not alone .. this fact is deliberately hidden from the public knowledge .. because if we know this they could lose their power ..

In fact it is this creating out of thin air that caused the financial crisis in 2007-2008 but did any laws change between Labor and Conservative governments ?

No.. what does this tell you ?

it tells me that you know a lot less about monetary economics than even the average man in the street. and they don't know much.

Reply 7

OP

Original post by xMr_BrightSide

It gets quite complicated though, so that's probably why the public don't really know what happens.

They don't know because no one talks about it .. try to guess why.

Reply 8

Original post by scrotgrot

Except the banks just keep it. Quantitative easing should have been given to the people, who will spend it.

Also this has nothing to do with QE. The bank creates money when it makes a loan. The reason it can do this is that the reserve requirement is like 0.1% or even nothing. This makes the system almost infinitely vulnerable to any momentary downturn in the economy. The banks cannot pay their creditors, people cannot pay their rent or wages. Only a few decades ago you could receive your wages and pay rent in cash rather than bank scrip. Today we are tied into the banks, hence too big to fail, hence they do whatever they like and we have to bail them out.

I know, OP has since clarified he wasn't talking about QE. But since the financial crisis I'm sure regulations have tightened up re. reserves and upper loaning limits. The banks know that if another crisis hits, the consumer outcry would be monumental, so one would hope that the regulators do a better job nowadays than they did previously.

Reply 9

OP

Original post by cole-slaw

it tells me that you know a lot less about monetary economics than even the average man in the street. and they don't know much.

Yes, the banks did exactly what they wanted.. keep the population (like yourself) completely unaware of what goes ahead behind the scenes.

Reply 10

Original post by demx9

They don't know because no one talks about it .. try to guess why.

Probably because sensationalist headlines like 'Banks make money from thin air' would be destructive in the long run, as people wouldn't bother to look into the economics of the matter and instead would just say 'omg banks are evil!!11'. That could lead to lower economic confidence + spending, creating a downward spiral.

Reply 11

Original post by demx9

Yes, the banks did exactly what they wanted.. keep the population (like yourself) completely unaware of what goes ahead behind the scenes.

Actually, I think you will find that the vast majority of the population understand perfectly the nature of the broad money supply, it is only a few people such as yourself that is clearly extremely confused.

Tell me OP, what do you think money actually is?

Reply 12

Blind Ferret

You're telling us nothing we don't already know? and you don't commit to ellipses or a full stop, just somewhere inbetween.

Reply 13

Paladian

14

Yeah and bankers have secret magic powers too - didn't you know?

Reply 14

Original post by xMr_BrightSide

Probably because sensationalist headlines like 'Banks make money from thin air' would be destructive in the long run, as people wouldn't bother to look into the economics of the matter and instead would just say 'omg banks are evil!!11'. That could lead to lower economic confidence + spending, creating a downward spiral.

nah, you get articles like this published every week. everyone knows that banks only have to keep a small proportion of their total liabilities in guaranteed liquid assets. its only OP that is confused here.

Reply 15

kyoti

it's made out of gold

Reply 16

OP

Original post by cole-slaw

Actually, I think you will find that the vast majority of the population understand perfectly the nature of the broad money supply, it is only a few people such as yourself that is clearly extremely confused.

Tell me OP, what do you think money actually is?

Can you please explain how you think a bank will loan money to a customer. Thanks.

Reply 17