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Why saving makes you poor
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Posts: 94 Forumite
This is how banking works.
-The bank has £0, you have £100
-You deposit £100 in cash, you now have a bank statement of £100
-Someone asks for a loan of £100 and gets a £100 credit to their account
-They withdraw your £100 of cash-your bank statement remains at £100
-You can electronically transfer that £100 to anyone else if you want to buy something on debit card for example.
-So you have £100 on your debit card which you can spend, and the other person has £100 in cash to spend...the money is doubled!!! If money is doubled but your £100 stays the same (plus a little interest). your buying power halves.
If you choose not to spend on your debit card but try to withdarw cash, this is a run on the bank and the bank will ask for a tax payer bail out. But since very few people do ask for cash, banks are permitted by law to do this nine times. Every time you deposit £1 in the bank your buying power is reduced by a factor of 9.
Keeping your money in a bank makes you poorer, the only person that gains is the banker.
Deep down you already know this, but have never thought about it before.
-The bank has £0, you have £100
-You deposit £100 in cash, you now have a bank statement of £100
-Someone asks for a loan of £100 and gets a £100 credit to their account
-They withdraw your £100 of cash-your bank statement remains at £100
-You can electronically transfer that £100 to anyone else if you want to buy something on debit card for example.
-So you have £100 on your debit card which you can spend, and the other person has £100 in cash to spend...the money is doubled!!! If money is doubled but your £100 stays the same (plus a little interest). your buying power halves.
If you choose not to spend on your debit card but try to withdarw cash, this is a run on the bank and the bank will ask for a tax payer bail out. But since very few people do ask for cash, banks are permitted by law to do this nine times. Every time you deposit £1 in the bank your buying power is reduced by a factor of 9.
Keeping your money in a bank makes you poorer, the only person that gains is the banker.
Deep down you already know this, but have never thought about it before.
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Comments
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This is how banking works.
-The bank has £0, you have £100
-You deposit £100 in cash, you now have a bank statement of £100
-Someone asks for a loan of £100 and gets a £100 credit to their account
-They withdraw your £100 of cash-your bank statement remains at £100
-You can electronically transfer that £100 to anyone else if you want to buy something on debit card for example.
-So you have £100 on your debit card which you can spend, and the other person has £100 in cash to spend...the money is doubled!!! If money is doubled but your £100 stays the same (plus a little interest). your buying power halves.
If you choose not to spend on your debit card but try to withdarw cash, this is a run on the bank and the bank will ask for a tax payer bail out. But since very few people do ask for cash, banks are permitted by law to do this nine times. Every time you deposit £1 in the bank your buying power is reduced by a factor of 9.
Keeping your money in a bank makes you poorer, the only person that gains is the banker.
Deep down you already know this, but have never thought about it before.
I never do the spending of a £100 on Debit card bit. By not taking out any money my interest gets larger every month until it is a very significant amount of money
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Are they legally allowed to have an assett / debt ratio of 1:9
or is that not what you're saying?0 -
Yes Fractional Reserve ratio is that. Higher on some specific accounts.
Google/wiki frational reserve you will see a common ration of 9-1.0 -
This is how banking works.
-The bank has £0, you have £100
-You deposit £100 in cash, you now have a bank statement of £100
-Someone asks for a loan of £100 and gets a £100 credit to their account
-They withdraw your £100 of cash-your bank statement remains at £100
-You can electronically transfer that £100 to anyone else if you want to buy something on debit card for example.
-So you have £100 on your debit card which you can spend, and the other person has £100 in cash to spend...the money is doubled!!! If money is doubled but your £100 stays the same (plus a little interest). your buying power halves.
If you choose not to spend on your debit card but try to withdarw cash, this is a run on the bank and the bank will ask for a tax payer bail out. But since very few people do ask for cash, banks are permitted by law to do this nine times. Every time you deposit £1 in the bank your buying power is reduced by a factor of 9.
Keeping your money in a bank makes you poorer, the only person that gains is the banker.
Deep down you already know this, but have never thought about it before.
Worst example ive read im afraid, like the other poster states, you miss out the point that you get interest on accounts, which you dont get if you money isnt in a bank, or building society,(or credit union)0 -
Leaving your money in your pocket, gains no interest, thus with inflation makes you poorer0
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I never do the spending of a £100 on Debit card bit. By not taking out any money my interest gets larger every month until it is a very significant amount of money
The second you put it in there it was worth 1/9th what it was before, your how long will you have to leave it in before your interest adds up to its original value?0 -
Leaving your money in your pocket, gains no interest, thus with inflation makes you poorer
Inflation exists because of the money created when the bank doubles, nine times, the money you put in.
Putting your money in the bank reduces it to 1/9th its previous buying power immediatly, does the little bit of interest compensate for that?
Inflation is not the Retail Price Index it is the ratio of Goods and services to Money in existence.
Why do you think assetts like houses which can be rented, or shares which pay a dividend, or a commercial vehices that can be used for work have prices that rise faster than inflation.0 -
The second you put it in there it was worth 1/9th what it was before, your how long will you have to leave it in before your interest adds up to its original value?
i fail to see how you can think its worth 1/9th than it was before, because you put in 100 pounds, it stays there (providing you dont touch it), you take it out, you get 100 pounds back0 -
Because 9 other people have £100 too now.
OR In the same way you could buy an item at an auction if you were the only one with £100, but if the bank lends 2 other people £450 each after you deposit £100 cash with them, they can both outbidding you.
As I said, £100 cash is allowed to be turned into £900 digital pounds on the concept that no one will ask for more than £100 phyiscal cash at any one time, they are happy with digital.
So if you all go to the aution with your digital money as you pay by debit card, their borrowed £450 pounds will out bid you.
They might even have the cheek to use the created borrowed money to buy the item you wanted then rent it back to you to pay off the loan.0 -
rocket_socks wrote: »i fail to see how you can think its worth 1/9th than it was before, because you put in 100 pounds, it stays there (providing you dont touch it), you take it out, you get 100 pounds back
It's not accurate to say it is immediately worth 1/9th of what it was before (we're not in Zimbabwe). However, he is correct that by depositing £100 in the bank, you are enabling the bank to lend £900 to other customers. Given that only £100 of services have been 'earned' but there is now £1000 in circulation, the £100 that you can spend (incidentally causing this hypothetical bank with only one depositor to collapse) will buy you less than it would before.
OTOH, the other 9 people who borrowed (say) £100 each, can now spend your money. And the bank, which originally owed you £100, is now owed £800.0
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