Currency expansion

RDB

If someone takes out a mortgage for £100K, then where does that money come from?

The bank doesnt take it from anywhere, its just created out of thin air.

So as soon as you sign the mortgage contract there is another £100K in the world. Added to the worlds currency supply.


So if that person doesnt pay it back at all, has anyone lost any money?

tomterm8

RDB wrote: »

If someone takes out a mortgage for £100K, then where does that money come from?

The bank doesnt take it from anywhere, its just created out of thin air.

So as soon as you sign the mortgage contract there is another £100K in the world. Added the worlds currency supply.


So if that person doesnt pay it back at all, has anyone lost any money?

Yes, the bank has lost money.

RDB

tomterm8 wrote: »

Yes, the bank has lost money.

How has the bank lost money?

The worth of the bank is still the same?


Im just trying to get my head round it thats all.

any help very much appreciated.

Generali

RDB wrote: »

If someone takes out a mortgage for £100K, then where does that money come from?

The bank doesnt take it from anywhere, its just created out of thin air.

So as soon as you sign the mortgage contract there is another £100K in the world. Added to the worlds currency supply.


So if that person doesnt pay it back at all, has anyone lost any money?

I think you're talking about fractional reserve banking and have perhaps misunderstood the point slightly. Banks don't just pull money out of their Asres but they do create money. Basically the way that it works is that a bank lends money to someone, they spend it and it is lodged by the seller in their bank from where it can be lent and so on.

Look up fractional reserve banking on Google or get a macreconomics textbook from your local library in which there will be a chapter on it.

nicko33

RDB wrote: »

Why dont they just add another £100K to the worlds currency supply?

Why do they bother to lend it? Why not just "create" the money and add it to their "profits"?

Generali

nicko33 wrote: »

Why do they bother to lend it? Why not just "create" the money and add it to their "profits"?

Because the OP has misunderstood how fractional reserve banking works.

This might help:

http://en.wikipedia.org/wiki/Fractional-reserve_banking

tomterm8

RDB wrote: »

How has the bank lost money?

The worth of the bank is still the same?


Im just trying to get my head round it thats all.

any help very much appreciated.

At the end of the day, a bank is only solvent as long as depositors think the bank can repay the deposits. When they lose £100,000, there equity is diminished by that amount. This (slightly) increases their liquidity ratio, therefore increases the cost of funding on the wholesale market, and puts the bank at greater risk of a run. Eventually, the regulators will shut it down.

There are restrictions on how much capital a bank must hold; if the liquidity ratio falls too far, the bank has to start closing down its lending operation, or, in the alternative, increase equity.

RDB

Yes fractional reserve banking means they are only supposed to create currencey out of thin air up to 20 x what savers put into the bank. But we all know they fiddle the numbers and sometimes they create far more than that. Hence the crisis.

What about all the bailouts last few years? Where did that money come from?


This latest Greek bailout for example, what if they cant pay it back. Has anyone lost any money?

When the IMF just creates say a trillion dollors and gives it in a bailout to someone. Then the worlds currency supply has just been expanded by another trillion.

If its paid back or not it doesnt really make any differnce if its just created out of thin air?



There is a real feeling around the world that something is wrong with the monetary system.

tomterm8

RDB wrote: »

What about all the bailouts last few years? Where did that money come from?

.

The bailouts were funded either by government borrowing, or in some cases, by the government creating the money. Governments, unlike banks, can create and destroy money at will; they are not limited to fractional reserves.

Generali

RDB wrote: »

Yes fractional reserve banking means they are only supposed to create currencey out of thin air up to 20 x what savers put into the bank. But we all know they fiddle the numbers and sometimes they create far more than that. Hence the crisis.

What about all the bailouts last few years? Where did that money come from?


This latest Greek bailout for example, what if they cant pay it back. Has anyone lost any money?

When the IMF just creates say a trillion dollors and gives it in a bailout to someone. Then the worlds currency supply has just been expanded by another trillion.

If its paid back or not it doesnt really make any differnce if its just created out of thin air?



There is a real feeling around the world that something is wrong with the monetary system.

These questions are too big to answer in a reasonable way on a forum like this. Can you break things down a bit?

For a start, help yourself. Understand what fractional reserve banking is. That will give you a good grasp of how money is created.

Then Greece. Well who owns the assets that will become worth less or even worthless if the Greeks default? Well before the bailout it was private investors and after the bailout a chunk are in effect owned by Governments which means taxpayers are on the hook.

The IMF hasn't given a trillion dollars to anyone I'm aware of.

Then we go full circle, money isn't created out of thin air as such but it is recycled to give the impression that it is.

Take a breath and break it up into bits and you'll find the whole thing isn't that complex (even if it is a bit worrying if you think about it too much).

RDB

Thanks Gen. I do understand fractional reserve banking and I know that they all fiddle the numbers and create far more currency than they are supposed to. The regulators are all in on it.

But I think the facts are that the worlds currency supply is expnading beyond anyones comprehension.

The best example to understand the worlds monetary system was to imagine a room full of top bankers and Governemnt officials.

They are all frantically writting on bits of paper I O Us and passing them to each other. All the time the numbers are getting bigger. A few decades ago it was millions, then Billions now these I O Us are in the trillions.

Its all a farse. Just based on peoples trusting these rapidly expanding fiat currencies.

At some point the house of cards will come crashing down.