IS THIS HOW USD IS CREATED?

[TimeBits]

https://twitter.com/i/status/1154006471601991680

So the government takes a loan from a bank, tells the bank they are going to pay them back and then some (not sure how that is possible, without getting more of a loan to get more into debt) Then the goverment owes the bank for doing this?

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[SuperPandaBear]

It's called fractional reserve and has been happening for years since we ever departed from a gold standard. Welcome to the post Nixon era.

[o_e_l_e_o]

The government are only responsible for a small amount of new fiat which enters circulation; the banks are responsible for the majority by issuing loans under the fractional reserve system.

Let's say you deposit $100 with your bank. The bank credits your account with $100, and then uses your money to loan out to other customs, keeping a "fraction" of it in "reserve" (lets say 10% for the purposes of this example). The bank keeps $10 in reserve, and loans out $90 to customer A. Customer A spends that $90 with a business, which then deposits $90 in to their account. The bank moves $9 to its reserves, and loans out the remaining $81 to customer B. Customer B spends that $81 with a business, which deposits it to their account. The bank moves $8.10 to their reserves, and loans out the remaining $72.90. And so forth. Take this down to its conclusions, and the total amount of new money entering circulation based off your original $100 deposit it $1,000, ten times as much. This is known as the "money multiplier".

This is the fractional reserve system. The banks only ever have a fraction of all their account balances in reserve, and why a "bank run" is possible; too many people trying to withdraw their money all at once can cause the bank to collapse as it quickly runs out of reserves.

[Upgrade00]

I got attracted to the actual video on the tweet and the discussion (or argument) on Bitcoin. And I would wish that the topic of cryptocurrency could be as polarizing as it is in America and some other nations in developing countries.
And I think it's down to the involvement of citizens. If more people got involved in cryptocurrency in Nigeria for example, it would become a topic of political debate and attract more attention.

The banks only ever have a fraction of all their account balances in reserve, and why a "bank run" is possible; too many people trying to withdraw their money all at once can cause the bank to collapse as it quickly runs out of reserves.

In this case could the central banks print more money to cover the rush and prevent a collapse?

[deisik]

It's called fractional reserve and has been happening for years since we ever departed from a gold standard. Welcome to the post Nixon era

Fractional reserve is also a thing of the past

It is a very common and widespread misconception to think that banks are somehow limited by the deposits that they have received (what fractional reserve is essentially about). In the modern day money is created via credit (it is called credit money for a reason). Banks don't need to look back at how much they have in their vaults as they can create as much money as required to meet the demand for that money. And if you think of it, it actually makes perfect sense since this is a very effective mechanism to provide liquidity for the economy in case the latter needs it. In other words, there is no reason to limit credit via a metric which doesn't in the least reflect the actual demand for new money

[o_e_l_e_o]

In this case could the central banks print more money to cover the rush and prevent a collapse?

Sure, a bank could borrow from the central bank, such as the Federal Reserve, which in this case is known as a "lender of last resort". This is more-or-less what happened during the 2008 financial crash when the banks were "bailed out". It introduces a number of problems, not least the fact that the tax payer ultimately has to bear the burden of the bail out.

In the modern day money is created via credit (it is called credit money for a reason).

Correct. It is fully known as the "credit theory of money". To follow on from my example of fractional reserve above, in credit theory the bank doesn't even need a deposit to start lending out. They simply create a $100 credit of new money in your account, whilst at the same time debiting you $100 in a new payment request. From the bank's point of view there has been no net change; their reserves haven't changed and their balance book still has the same bottom line. However, $100 of new money has just been created.

[TimeBits]

In this case could the central banks print more money to cover the rush and prevent a collapse?

Sure, a bank could borrow from the central bank, such as the Federal Reserve, which in this case is known as a "lender of last resort". This is more-or-less what happened during the 2008 financial crash when the banks were "bailed out". It introduces a number of problems, not least the fact that the tax payer ultimately has to bear the burden of the bail out.

In the modern day money is created via credit (it is called credit money for a reason).

Correct. It is fully known as the "credit theory of money". To follow on from my example of fractional reserve above, in credit theory the bank doesn't even need a deposit to start lending out. They simply create a $100 credit of new money in your account, whilst at the same time debiting you $100 in a new payment request. From the bank's point of view there has been no net change; their reserves haven't changed and their balance book still has the same bottom line. However, $100 of new money has just been created.

Oh, I get it now, We just create a supply of money out of thin air and expect everyone else to work for it? ahh sounds like $lavery, oh not to mention now you have to pay interest on that $100 that does not even exist compound or not.  

What a fucking great system my doods.




LOOK AT THIS ONE HE IS GOING HEAD OVER HEELS FOR IT

[o_e_l_e_o]

Oh, I get it now, We just create a supply of money out of thin air and expect everyone else to work for it? ahh sounds like $lavery, oh not to mention now you have to pay interest on that $100 that does not even exist compound or not. 

Now you see why so many of us are interested in bitcoin.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

[TimeBits]

Oh, I get it now, We just create a supply of money out of thin air and expect everyone else to work for it? ahh sounds like $lavery, oh not to mention now you have to pay interest on that $100 that does not even exist compound or not.

Now you see why so many of us are interested in bitcoin.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

I think he meant it Literally he just did not want to get JFKED

[deisik]

they simply create a $100 credit of new money in your account, whilst at the same time debiting you $100 in a new payment request. From the bank's point of view there has been no net change; their reserves haven't changed and their balance book still has the same bottom line. However, $100 of new money has just been created

Accounting rules may be different across the world

But where I live (Russia), the net balance (the balance book in your speak) gets increased by the amount borrowed. The reason for that is simple. The money thus created increases both assets and liabilities of the bank as the credit (which is the bank's asset) gets credited (yeah) to the borrower's account (this deposit then becomes the bank's liability), and the bottom line necessarily gets augmented. It also makes sense as the bank is typically offered some form of collateral. In this manner, it is not quite correct to speak of this money as printed out of thin air because technically it is a collateralized form of money

We just create a supply of money out of thin air and expect everyone else to work for it? ahh sounds like $lavery, oh not to mention now you have to pay interest on that $100 that does not even exist compound or not

It is not that simple, either. The money is still created based on demand for credit, while the latter should be secured by enough collateral (well, at least in theory). So it is not like a bank can print money nonstop 24/7. No honey, no money

[TimeBits]

We just create a supply of money out of thin air and expect everyone else to work for it? ahh sounds like $lavery, oh not to mention now you have to pay interest on that $100 that does not even exist compound or not

It is not that simple, either. The money is still created based on demand for credit, while the latter should be secured by enough collateral (well, at least in theory). So it is not like a bank can print money nonstop 24/7. No honey, no money

Sir if what you just said is true, there should be no money in circulation.

Based on demand for credit? you mean debt? to the bank, with interest and in order to obtain that interest (compound or not), more debt (not credit) must be accumulated. SPOILER: IT DOES NOT EVEN EXIST

So yes a bank does magically print the money out of thin air and clearly they are doing it unlimited because we don`t know the supply cap of USD or EURO`s OR any fiat for that matter of fact, to supply the "credit" AKA debt to a person. That person now has to obtain money that does not even exist in order to pay the debt back.

https://www.usdebtclock.org/world-debt-clock.html They will all be negative in the future, for one country`s gains is another`s loss and the loss has interest on it.

Yes they do print the $cam unlimited 24/7 and create money non stop, or there would not be  $80 trillion +++++++++++++++++++++++++++++++++++++++++++ fiat dollars in bank accounts in existence, with the number just growing 10 fold each year.

[odolvlobo]

It's called fractional reserve and has been happening for years since we ever departed from a gold standard. Welcome to the post Nixon era

Fractional reserve banking existed under the gold standard. There were many bank runs and financial panics in the U.S. when the dollar was fixed at $20/oz. That was the reason for creating the Federal Reserve.

BTW, I believe that we will see fractional reserve banking with Bitcoin, too. And, that is why I don't think a bitcoin will ever be worth $1 million.

It is a very common and widespread misconception to think that banks are somehow limited by the deposits that they have received (what fractional reserve is essentially about).

So you are saying that this is a misconception: 12 CFR Part 204 - RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)

[TimeBits]

Fractional reserve banking existed under the gold standard. There were many bank runs and financial panics in the U.S. when the dollar was fixed at $20/oz. That was the reason for creating the Federal Reserve.

BTW, I believe that we will see fractional reserve banking with Bitcoin, too. And, that is why I don't think a bitcoin will ever be worth $1 million.

"I believe that we will see fractional reserve banking with Bitcoin"

Bro it already happens on almost all of the exchanges.

[deisik]

It is a very common and widespread misconception to think that banks are somehow limited by the deposits that they have received (what fractional reserve is essentially about).

So you are saying that this is a misconception: 12 CFR Part 204 - RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)

It is basically a test on how well you (not necessarily you personally, of course) understand what FRB refers to and is essentially about. Simply put, FRB says that banks can create credit only out of deposits that they have received (using a multiplier, hence fractional), but this is not how the modern banking system works, end of story

I didn't read this regulation (so bear with me) but I guess these requirements demand that a bank should keep some cash in its vaults in case borrowers want to take cash. But that in itself doesn't change anything in the process described above (deposits via credit and not the other way around). The word reserves, or even reserve requirements, doesn't make it fractional reserve banking

And in Canada, for example, there are no reserve requirements (if I'm not mistaken)

[Kakmakr]

" A bank is always inherently bankrupt, and would actually become so if its depositors all woke up to the fact that the money they believe to be available on demand is actually not there. " Source : https://mises.org/wire/why-fractional-reserve-banking-would-be-limited-unhampered-market

So you create money from thin air by practicing Fractional reserve loans and the Reserve Banks keeps the liquidity in tact, by printing more toilet paper money. 

More info on the subject : https://mises.org/library/austrians-fractional-reserves-and-money-multiplier

[deisik]

" A bank is always inherently bankrupt, and would actually become so if its depositors all woke up to the fact that the money they believe to be available on demand is actually not there. " Source : https://mises.org/wire/why-fractional-reserve-banking-would-be-limited-unhampered-market

This is no longer relevant in today's world

People are still citing sources which were true for the 19th century banking (okay, for some part of the 20th as well). Today, most money is cashless anyway, and much of it is just figures on the central bank accounts. So whatever amount of money is demanded by the "depositors" (even the very idea of a depositor lost its meaning since it is more like a borrower these days), it will come down to simply changing entries in these accounts (i.e. debiting one account and crediting another). It is a non-issue because the modern money is fiat and as long as the accounting is right, there will always be enough money for any legitimate claim on it, per definition

[odolvlobo]

It is a very common and widespread misconception to think that banks are somehow limited by the deposits that they have received (what fractional reserve is essentially about).

So you are saying that this is a misconception: 12 CFR Part 204 - RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)

It is basically a test on how well you (not necessarily you personally, of course) understand what FRB refers to and is essentially about. Simply put, FRB says that banks can create credit only out of deposits that they have received (using a multiplier, hence fractional), but this is not how the modern banking system works, end of story

I didn't read this regulation (so bear with me) but I guess these requirements demand that a bank should keep some cash in its vaults in case borrowers want to take cash. But that in itself doesn't change anything in the process described above (deposits via credit and not the other way around). The word reserves, or even reserve requirements, doesn't make it fractional reserve banking

And in Canada, for example, there are no reserve requirements (if I'm not mistaken)

You are correct. Canada removed their reserve requirements in 1992; however, lending is still restricted by capital requirements. I am skeptical of your statements because you seem to be unaware of the details.

[deisik]

It is a very common and widespread misconception to think that banks are somehow limited by the deposits that they have received (what fractional reserve is essentially about).

So you are saying that this is a misconception: 12 CFR Part 204 - RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)

It is basically a test on how well you (not necessarily you personally, of course) understand what FRB refers to and is essentially about. Simply put, FRB says that banks can create credit only out of deposits that they have received (using a multiplier, hence fractional), but this is not how the modern banking system works, end of story

I didn't read this regulation (so bear with me) but I guess these requirements demand that a bank should keep some cash in its vaults in case borrowers want to take cash. But that in itself doesn't change anything in the process described above (deposits via credit and not the other way around). The word reserves, or even reserve requirements, doesn't make it fractional reserve banking

And in Canada, for example, there are no reserve requirements (if I'm not mistaken)

You are correct. Canada removed their reserve requirements in 1992; however, lending is still restricted by capital requirements. I am skeptical of your statements because you seem to be unaware of the details

Reserve requirements are there for a reason

These requirements are imposed by the central bank to limit the risks of a possible banking, and more broadly financial, crisis due to massive defaults of borrowers (read, it is not about depositors cleaning up bank's vaults at all). It doesn't always work as planned, of course, which the US subprime mortgage crisis of 2008 has clearly shown, but if there were no defaults, then there would be no reason to artificially limit lending. As I have already explained above, credit money is a collateralized form of money, so it is not like this money is not backed up by anything. It should now be easy to see that these limits have little to do with what FRB generally stands for

[semobo]

https://twitter.com/i/status/1154006471601991680

So the government takes a loan from a bank, tells the bank they are going to pay them back and then some (not sure how that is possible, without getting more of a loan to get more into debt) Then the goverment owes the bank for doing this?

It was created by the banks by backing up their gold resrve but now a days the fiat money printed on no bases,they keep printing fiat as much as they want and issue the loans to get the prices inflated and keep on going.

[joniboini]

It was created by the banks by backing up their gold resrve but now a days the fiat money printed on no bases,they keep printing fiat as much as they want and issue the loans to get the prices inflated and keep on going.

I do hope they'll do it and then crash their system without any possible recovery and then sound money will be the standard in the market. Bitcoin should be one of the alternatives for that.