What Happens When Double Spending Occurs With USD???

[gigabytecoin]

Say I send an email money transfer (these are popular in Canada) to my friend.

The bank's software that handles email money transfers forgets to remove the money from my account. But still adds it to my friends.

He is now $100 richer. And I am no poorer. Because of a software glitch.

This is entirely plausible to me.

Does it happen? How do they catch it? What can it's (presumably negative) effects be on the currency as a whole?

EDIT: Yes Jim Hyslop, you were correct!

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[Anonymous]

Everybody gets a little poorer.

Does it happen? Ask Ben Bernanke.

[Jim Hyslop]

Say I send an email money transfer (these are popular in Canada) to my friend.

The bank's software that handles email money transfers forgets to remove the money from my account. But still adds it to my friends.

He is not $100 richer. And I am no poorer. Because of a software glitch.

This is entirely plausible to me.

Does it happen? How do they catch it? What can it's (presumably negative) effects be on the currency as a whole?

By the way, am I correct in presuming you meant to write "he is NOW $100 richer"?

You bet they'll catch it. Remember, what are bankers, really? They're accountants. And accountants live to make sure glitches like that don't happen. In accounting, every transaction is treated as a transfer from one account to another. It's called double-entry bookkeeping: every transaction has a debit entry in one account, and a credit entry in another account. At the end of the day, add up all the debits, add up all the credits. The amounts have to be the same.

Money is never transferred directly from one person's account into another person's account. At a minimum, your action of sending money to your friend will have at least two transfers involved, more if he deals with a different bank. Let's say that's the case - you deal with bank A, he deals with bank B. You'd have at least these transfers:

At your bank:
Transfer $100.00 from gigabytecoin's account 1234567, to general ledger (GL) account "Email Money Transfer"
Transfer $100.00 from GL account "Email Money Transfer" to GL account "Send to Bank B", and send details of the transfer to bank B

At the other bank:
(Receive details of the transfer from bank A)
Transfer $100 from GL account "Received From Bank A" to GL Account "Email Money Transfer"
Transfer $100 from GL account "Email Money Transfer" to friend's account 7654321


Each of those accounts is monitored and audited separately. If the first transaction got lost, then the report for the GL account would show $100 going out, but nothing coming in to cover it. Someone will investigate, discover the missing transaction, and correct it. If the second transfer gets lost, some report will show that bank A says it didn't send any money, but bank B says it did. And so on.


Atlas, I don't understand your Ben Barnanke reference. How does it relate to the question?

[shemer77]

yea i guess if you want to put it simply, every one gets a little bit poorer :p

[yunk3r]

well here is banks work. you give them money in which they lend out to other people, and in return for you giving them money, and letting them lend it out they give you interest. Banks do not keep all of there money on hand however, they send some to the federal reserve which acts as a banks bank(federal reserve in u.s only there is probable an similar agency in Canada, and other countries). the banks have a total amount of money then have some is in there safe, and the majority of it is at the federal reserve. when you spend the money it gets deducted from your total, but also the banks total, and when your friend spends the money it is deducted from his total, and the banks total again, so the banks is the one who loses the money. No money is created.

[TiagoTiago]

Wasn't double spending one of the main causes banks needed to be rescued by the governament? (the bank lends 100 bucks to person A in the form of an redistributable IOU ticket, then they do the same with person B and person C; but then person A and person B go bankrupt and don't pay the bank back, now  the bank has spent 300 bucks but only really has 100 bucks to to pay the all the IOUs they distributed)

[Jim Hyslop]

Wasn't double spending one of the main causes banks needed to be rescued by the governament? (the bank lends 100 bucks to person A in the form of an redistributable IOU ticket, then they do the same with person B and person C; but then person A and person B go bankrupt and don't pay the bank back, now  the bank has spent 300 bucks but only really has 100 bucks to to pay the all the IOUs they distributed)

I think we need to clarify some terms here.

You're thinking of the fractional reserve system, but your explanation has a few gaps and inaccuracies in it. Rather than try to explain fractional reserve myself, I'll just point you to Wikipedia: http://en.wikipedia.org/wiki/Fractional-reserve_banking. If you haven't already seen it, watch the film "Money As Debt" (available on Youtube). It gives a great explanation of the fractional reserve system, and you don't need an economics degree to understand it 

"Double spending" is term that applies only to digital cash. It means that someone has a token representing some digital cash, and uses the same token to pay two different people. Bitcoin solves that problem with the block chain.

gigabytecoin's post isn't actually about double spending. AFAIK there's no specific term for the problem he described, other than "bank error", or as he put it, "glitch".

HTH!

[gigabytecoin]

Indeed, that does help. Thank you very much Jim!

Also you were correct in noting my spelling error in the OP.

See you around!

[benjamindees]

The short answer is that banks that allow double spending go bankrupt and lose their initial capital.

The long answer is that the Federal Reserve bails them out using money they print from thin air and the value of everyone's money goes down to pay for it.

[opo543]

Say I send an email money transfer (these are popular in Canada) to my friend.

The bank's software that handles email money transfers forgets to remove the money from my account. But still adds it to my friends.

He is not $100 richer. And I am no poorer. Because of a software glitch.

This is entirely plausible to me.

Does it happen? How do they catch it? What can it's (presumably negative) effects be on the currency as a whole?

By the way, am I correct in presuming you meant to write "he is NOW $100 richer"?

You bet they'll catch it. Remember, what are bankers, really? They're accountants. And accountants live to make sure glitches like that don't happen. In accounting, every transaction is treated as a transfer from one account to another. It's called double-entry bookkeeping: every transaction has a debit entry in one account, and a credit entry in another account. At the end of the day, add up all the debits, add up all the credits. The amounts have to be the same.

Not true. Bankers lose money and make mistakes, and often don't catch them unless someone else does.

My grandfather found an extra 10k in his account one day. Being an honest guy, that or being afraid of getting into trouble (I think a bit of both actually), he went over to the bank manager and reported the mysterious 10k.

Their response was "Thank you so much, we were looking for that money, if you didn't come forward, i don't know if we ever would have found it".

Just because they make a mistake, doesn't mean they know where to look to catch it, what if the reason that they didn't take the 100 out of your account included losing the account number associated with the transaction? Finding where it should come from is not only a needle in a haystack... bankers, being accountants, also realize that its entirely possible to spend more time trying to find where some money went, than you lost in the first place.

[Jim Hyslop]

You bet they'll catch it.

Not true. Bankers lose money and make mistakes, and often don't catch them unless someone else does.

Good point. Let's just say that I explained the theory, and as the wise person once said, the difference between theory and practice is bigger in practice than in theory. :-D

[PLATO]

This sorta happens in stock markets when you get a 'failure to deliver.' this means that somehow, when alice sells 10k shares of Foo to bob, 1k go missing somehow. Bob thinks he has 10k shares but it really is 9k; I don't really understand what happens to the extra 1k. I think they just disappear, and the clearinghouse gets richer. Patrick Byrne, CEO of Overstock.com, and Richard Grove, wall street trader and 9/11 whistleblower, talk about it in this podcast - http://peacerevolution.podomatic.com/entry/2010-05-18T16_27_48-07_00

[marcus_of_augustus]

The credit markets broke in in Aug 2007. Since then they have limped along with bust mega banks hiding the losses in secret accounts off balance sheets. they even changed some accountancy rules and laws so they would not have to declare big banks bankrupt. Failures to deliver are rife but get papered over with money printing, the whole system is broke and has been for more than 3 years but it has inertia and most people still believe in it and trust the money in their accounts .... the financial crises never went away, it will smoulder away until the debts are extinguished.

scroogle the term "treasury market failure to deliver"
to get started on how broken it is, treasuries are the bedrock of the global credit system, think of them like bitcoins issued by US Govt. and administered by Fed. Res. member banks
http://www.euromoney.com/Article/2060042/CurrentIssue/65745/The-treasury-market-reaches-breaking-point.html

[PLATO]

from reuters via mediamonarchy:

The United States is on a fiscal path towards insolvency and policymakers are at a "tipping point," a Federal Reserve official said on Tuesday. "If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when," Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt.

http://mediamonarchy.blogspot.com/2011/03/us-approaching-insolvency-fix-to-be.html

[gigabytecoin]

Say I send an email money transfer (these are popular in Canada) to my friend.

The bank's software that handles email money transfers forgets to remove the money from my account. But still adds it to my friends.

He is not $100 richer. And I am no poorer. Because of a software glitch.

This is entirely plausible to me.

Does it happen? How do they catch it? What can it's (presumably negative) effects be on the currency as a whole?

By the way, am I correct in presuming you meant to write "he is NOW $100 richer"?

You bet they'll catch it. Remember, what are bankers, really? They're accountants. And accountants live to make sure glitches like that don't happen. In accounting, every transaction is treated as a transfer from one account to another. It's called double-entry bookkeeping: every transaction has a debit entry in one account, and a credit entry in another account. At the end of the day, add up all the debits, add up all the credits. The amounts have to be the same.

Not true. Bankers lose money and make mistakes, and often don't catch them unless someone else does.

My grandfather found an extra 10k in his account one day. Being an honest guy, that or being afraid of getting into trouble (I think a bit of both actually), he went over to the bank manager and reported the mysterious 10k.

Their response was "Thank you so much, we were looking for that money, if you didn't come forward, i don't know if we ever would have found it".

Just because they make a mistake, doesn't mean they know where to look to catch it, what if the reason that they didn't take the 100 out of your account included losing the account number associated with the transaction? Finding where it should come from is not only a needle in a haystack... bankers, being accountants, also realize that its entirely possible to spend more time trying to find where some money went, than you lost in the first place.

Come to think of it, I too have noticed "mystery deposits" at my home branch here in Canada. And we're talking the 2000's here.

It was a few thousand bucks. Just noticed it in my account one day, and then received a letter in the mail informing me of the error I believe. Or a phone call. Something fairly formal at least.

But I still think Jim is right, in the sense that at least the bank could not simply "create" that money and add it to the "missing" account.

Banks are run by people, of course they will press the wrong button occasionally. But it doesn't mean that they can just go and duplicate missing money.