Where did all the money go???

greenface

1694 wrote: »

This is how banking works (against you.)
-The bank has £0, you have £100 paper notes
-You deposit £100 in paper 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 the money available to spend 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 withdraw cash, this is a run on the bank and the bank will ask for a tax payer bail out.

Since very few people do ask for cash, banks are permitted by law to do this nine times. The banks of course know form experiance that only 1/9th of demands will be in the form of hard cash so they always make up and lend a digital 9 times the original paper or coin. 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.

(This stems back to a time when, gold bars were real money and gold certificates were the digital money. As long as people were happy with the gold certificates and didn’t withdraw the gold things would be fine.)


Now the real problem! If there was £100 to start with and £900 was lent at interest of 0.2% even if the borrowers took all the money of that originally existed and added it to their loans they will still be short of the total repayments: £900 at 0.2% interest is £1080. Where can that £80 come from? No where, someone has to give up something they owned before they borrowed. The process can take place slower if the interest rate charged is lower than 0.2% but compound interest on debts that will always end the same way.

We have simply come to the crunch, where is that extra money? It never existed to start with, it hasn't been magicaly created by fractional reserve....Stuck!

You havent made me happier just blown a little mist away. :beer:
well done that person:T

reduceditem

Money is nothing more than a promise.

1694

reduceditem wrote: »

Money is nothing more than a promise.

LOL more than that, in it's current form it is a fraud. A promise that knowingly can't be fulfilled but is offered anyway.

cbobting

1694 wrote: »

LOL more than that, in it's current form it is a fraud. A promise that knowingly can't be fulfilled but is offered anyway.

http://video.google.com/videoplay?docid=-9050474362583451279

jauntyangle

Basically money loaned by banks (over and above the initial savings deposit) is money not yet generated.

It's a promise that the loanee will generate that income through work over the lifetime of that loan.

The problem is that a lot of people have been given loans which they have no chance of paying - therefore that money will never be generated, so it has to be made up by the taxpayer.

nicholbb

1694 wrote: »

LOL more than that, in it's current form it is a fraud. A promise that knowingly can't be fulfilled but is offered anyway.

Ha, complete rubbish, next you'll be saying that a Nordic governments promise to protect your savings up to 20,000 Euros could be broken.

Oh... sorry my bad.

Thanked you to say sorry

Arch_23

watch

http://www.youtube.com/watch?v=NT-2fenmLnc

&

http://www.youtube.com/watch?v=6YurhFvPy14

they illustrate pretty much what 1694 has already explained.

greeny12

And all this, of course, is before we got to the world of securitisation and off-balance sheet vehicles that basically enabled the banks, not satisfied with the existing generous lending ratios, to get around them and lend even more money they didn't have!!

This is what's really to blame for the credit crunch. Lending seemed to be a one way bet and as a result credit became too cheap, with too little oversight on the counterparty risks involved, because dodgy loans were simply parcelled up with slightly better stuff, given a cursory look over by the rating agencies, and passed on to any Jack Harry keen to jump on the bandwagon. Thus billions of real money turned into trillions and trillions of 'credit securities' of varying hues passed around like a madcap game of pass the parcel. When the music stopped in August last year the !!!!!! duly hit the fan, and it's going to take years to work itself out.

Even today, so soon after all this nonsense started to unravel, the idea of somebody being able to buy an established company on 100% borrowed money, then load all that debt straight onto the company without anybody raising an eyebrow, seems absolutely preposterous. But that's what happened thousands of times, bringing good businesses to their knees and putting people out of work when the debt burden suddenly couldn't be rolled over in the money markets and actually had to be repaid with hard cash.

What a crazy world we live in....