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How the banks create money

(Others welcome to chime in too, btw.)
Are you talking about short selling? In "Naked" short selling, "phantom" shares are traded - a sort of "fractional reserve stockbroking". Of course, the short-seller would have to buy real shares sometime in the future to make everybody whole. drkitten described this process in the A peculiar view of money thread.

EDIT: He also had an analogy in which it could appear that 10 lawnmowers existed when in fact there was only one. I can't find the link to that anymore.
 
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This sounds kind of like what I'm talking about, but my terminology probably lacks lustre.

I honestly have no idea. In fact, I'm not even entirely sure what you mean by "the value of the put and call contracts"; if I buy a far out of the money call option for one hundred shares of INTC, I might pay only $1 per share for a nominal "value" of $150 a share. Is the "value" of that contract $100, or $15,000?

But as to the bigger question, there's no money created in a call/put contract, although there is "wealth" created. Essentially, (99% of) options are bets. In the case above, I would be betting that Intel is going to increase tenfold in the next short period of time, and someone else is betting that it's not. One of us is right and one of us is wrong and we'll settle up come Memorial Day.

Yeah I didn't mean money creation per se. What I meant was, take copper... two guys agree on a price of copper in 10 days, and sign a contract for delivery of one ton of copper. 10 days later, they look at the going price of copper, and one guy generally gives the other guy money to cover the difference in the agreed price for settlement of the contract vs. the market price, right?

The number of tons of copper accounted for in these contracts could easily outweigh the number of tons of copper actually in existence and tradeable right? I guess that's confirmed when you say 99% of options are bets, with the remaining 1% being contracts for delivery of the actual commodities.
 
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Yeah I didn't mean money creation per se. What I meant was, take copper... two guys agree on a price of copper in 10 days, and sign a contract for delivery of one ton of copper. 10 days later, they look at the going price of copper, and one guy generally gives the other guy money to cover the difference in the agreed price for settlement of the contract vs. the market price, right?

Spot on.

The number of tons of copper accounted for in these contracts could easily outweigh the number of tons of copper actually in existence and tradeable right?

Right.

I guess that's confirmed when you say 99% of options are bets, with the remaining 1% being contracts for delivery of the actual commodities.

But a lot of people who need the actual commodities simply buy the commodity at spot prices. You need a fairly substantial and fairly predictable need before you bother with options for actual goods.
 
Thanks for clearing that up for me. You too, psion. Appreciate taking the time.

also lol @ "spot" on
 
I'm afraid I have to side with Skeptic on this one. Telepathy failure is never the recipient's fault, and your complete lack of any ability to express yourself clearly and coherently may simply be masking system that is fundamentally broken and dishonest.

But the casual reader will never infer it from what you've written. The casual reader will instead infer from your writings that opposition to the current banking system is incoherent and irrational, and that no sensible person could oppose the system in any way other than minor tweaks such as putting maximum fees for overdrafts and whatnot.

I have to agree that I am not the best person to explain how Social Credit works. How ever You and psion would have to be the most ignorant I have ever come across. Your beliefs in a system that is so corrupt is beyond belief.

There is something dreadfully and fundamentally wrong with the financial systems of the world. Why should nations rich in minerals, food production capabilities, power generating resourses and most of the essentials of life have staggering internal debts and foreign debts? Why should our debts grow as our production grows?

It is due to the international banks permited practice of creating most of the world's money In The Form Of Debt. Debt on which crippling interest must be paid, in effect, for ever.

Banks should not have the power to create our money. They are simply commercial enterprises like McDonalds or any corner milkbar, that are concerned only with profits for their owners. For that reason they are unsuited to exercise the power to create the nation's money.

Governments have the responsibility to aim for the greatest good for the greatest number. The power to create the nation's money is an essential tool that all governments must have in doing this.

But of course this is too difficult for you to understand!
 
H.G.Wells once wrote that, in a mythical land of the blind, the inhabitants regarded a man who claimed to be able to see, as suffering from delusions and being potentially dangerous. Some politicians and economists seem to think the same of any man who claims to see faults in the bank created credit system. If they had grown up in a country where new money was always issued debt free, they would probably would not comprehend a suggestion that it be issued as debt. Why should they? Why should it be? As it is, they seemingly accept the situation where the private banks create billions of dollars of credit money for profit. Surely they can accept that the Government, in the interest of the nation, can do the same.

This system keeps us in the bondage of debt and, like the slaves of old, we may struggle to escape from our bonds, but we do not query our (financial) masters’ right to impose those bonds. Strange Apparently people who have grown up from childhood in a particular system find it hard to comprehend any other. It was probably the same in the slave owning countries of long ago.

We the people, produce the real wealth of the country, the goods and services. Why should we need to be bogged down for ever in interest- bearing debt to the banking system, which does nothing but produce, handle and deal in money, the symbols of the real wealth that we produce? Why is this not done? Perhaps the best answer to this question comes from this quote:

‘The few who understand the system will either be so interested in its profits or so dependant on its favours that there will be no opposition from that class, while on the other hand, the great body of the people, mentally incapable of comprehending the tremendous advantages that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests’

This quote comes from a letter written in 1863 from the European banking powers to their American associates.

I understand that many of you will be confused about these issues. I have attempted to explain this through a web site I recently launched www.bleedingindebt.com . It’s far from perfect, but at least it is a start. It contains videos and explanation graphs to compare present system to alternative system. It describes Social Credit as a solution. It comes from an Australian perspective first but it applies just as much for the rest of the world.

There is a better way!
 
I love how delusional people always paint themselves as great revolutionaries, and if we only appreciated their keen insights, together we could cure all the world's ills. In reality of course, they simply don't understand what they're talking about.
 
I love how delusional people always paint themselves as great revolutionaries, and if we only appreciated their keen insights, together we could cure all the world's ills. In reality of course, they simply don't understand what they're talking about.

There's an even more devious flaw as well. It is the notion that if someone understands what I am talking about, they must agree. Because, after all, if they just understood, they would come to the same conclusions I have -- the two are so deeply intertwined that the only "out" for disagreement is that others are stupid or have an agenda, or as the most recent accusation goes: (paraphrased) "They are stuck in a false belief system and cannot make their way out."

I am not emotionally invested in fiat money. No banks at all and a universal credit card would work for me. Social credit might work just as well, I haven't delved into the website posted. Living off the grid and barter has some advantages. But all these are competing ideas that can and should do battle. There is no right/wrong or good/bad here. No morality at all.

If I have listened to the arguments and rejected them, consider that either you did a poor job of communicating your ideas or that I actually do understand but still disagree.
 
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. . . . . .
I am not emotionally invested in fiat money.
. . . . . . . .
If I have listened to the arguments and rejected them, consider that either you did a poor job of communicating your ideas or that I actually do understand but still disagree.
If you believe that this is all about fiat money then the 7 pages of this particular forum are all a waste of space.
 
If you believe that this is all about fiat money then the 7 pages of this particular forum are all a waste of space.

You are right, I used the wrong terminology. Let me distill down, into the most basic model, the structure of the claims here.

Art, Bank, and Chuck -- our own little economy.

Art deposits $100 in the Bank.
Bank will pay him 1% interest after a year.
Chuck borrows $50 (a fractional reserve of 50%) and pay 4% interest after a year.

Chuck does some work or sells something to Art and gets a check drawn on Art's savings for $2.

End of the year comes and Art gets $99. His original $100 + $1 interest and minus the $2 check.

Chuck pays off his loan for $50 plus $2 interest.

The Bank makes $1.

At the end, of the original $100 in our economy, Art has $99, the Bank has $1 and Chuck has $0. No money created.

If I have this most basic model incorrect, then I've wasted a lot of time reading here. If I have at least this part correct, then it is the extensions that allow fiduciary shenanigans that I have missed.
 
Art deposits $100 in the Bank.
Bank will pay him 1% interest after a year.
Chuck borrows $50 (a fractional reserve of 50%) and pay 4% interest after a year.
Better.

At this stage, there are either of two scenarios:
1) Art has $100 in his bank account, the bank has $50 in reserves and Chuck has $50 in cash. (a fractional reserve of 50%)
2) Art has $100 in his bank account, Chuck has $50 in his bank account and the bank has $100 in cash (a fractional reserve of 66 2/3%)

In either case, if both Art and Chuck want their money in cash the bank can't do it.

The rest of your post is accurate except that Art also has the $2 item (a total of $101). So $2 has been created through Chuck's work.

Consider an alternative scenario: Art has put $50 of his money into a fixed term account at 2%. The rest of the scenario plays out as before with the same end result except that after the loan is made, either both Art has $50 in his bank account, the bank has $50 in cash and chuck has $50 in cash (100% reserves) or both Art and chuck have $50 in their bank account and the bank has a total of $100 in reserves (again 100%reserves).

Although the end result will be the same, the bank never has to worry that Art and Chuck will withdraw a combined total that is more than what the bank has in reserves. Isn't that safer?
 
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I love how delusional people always paint themselves as great revolutionaries, and if we only appreciated their keen insights, together we could cure all the world's ills. In reality of course, they simply don't understand what they're talking about.

I think the truth speaks for it's self. Any one here can see for themselves how the banks create money out of nothing by checking how fractional reserve banking actually works. It's a no brainer even for you. You my friend are living in you own delusions
 
So $2 has been created through Chuck's work.
A little clarification is required here.

Chuck has increased production by $2 but there is still the same amount of money (after Chuck has repaid his loan and assuming that the $1 bank profit remains in the community). We need to increase the money supply by $2 to keep pace.

Under FRB there are two options:
1) the bank creates another $2 in loans (further diluting its reserves)
2) the government creates $1 which the bank uses to lend out $2 (50% reserve).
Either way, the bank profits from the need for more money.

Under full reserve, the government creates the $2 and spends it into the community free of charge.
 
Under FRB there are two options:
1) the bank creates another $2 in loans (further diluting its reserves)
2) the government creates $1 which the bank uses to lend out $2 (50% reserve).
Either way, the bank profits from the need for more money.

Jesus Christ, if you're going to muck around with analogies then get them right. If there's a 50% reserve and the government creates $1, then the bank can only lend out 50c. Just getting the absolute basics wrong shows you don't understand what you're talking about or attempting to criticise.

Under full reserve, the government creates the $2 and spends it into the community free of charge.

This is what happens already :rolleyes: and has nothing to do with fractional lending. The governments don't create money to be lent to you through fractional lending, ffs. Governments spend money that inevitably end up in banks because those that received the original spending money put it into their institution of choice.
 
Jesus Christ, if you're going to muck around with analogies then get them right. If there's a 50% reserve and the government creates $1, then the bank can only lend out 50c. Just getting the absolute basics wrong shows you don't understand what you're talking about or attempting to criticise.



This is what happens already :rolleyes: and has nothing to do with fractional lending. The governments don't create money to be lent to you through fractional lending, ffs. Governments spend money that inevitably end up in banks because those that received the original spending money put it into their institution of choice.
WOW. I thought you actually understood the basics of the mechanics of FRB.

THINK man THINK! Somebody puts $1, the bank lends out 50c. That's already $1.50 out there. Then the 50c gets deposited and another further 25c gets lent out (total is now $1.75) etc etc. Eventually the total money out there is $2.

2) the government creates $1 which the bank uses to lend out $2 (50% reserve).
I'll admit I made a typo there. For a 50% reserve, then bank lends out $1 for a total of $2 in circulation.
 
WOW. I thought you actually understood the basics of the mechanics of FRB.

THINK man THINK! Somebody puts $1, the bank lends out 50c. That's already $1.50 out there. Then the 50c gets deposited and another further 25c gets lent out (total is now $1.75) etc etc. Eventually the total money out there is $2.

Then say that. Specifics matter.

2) the government creates $1 which the bank uses to lend out $2 (50% reserve).
I'll admit I made a typo there. For a 50% reserve, then bank lends out $1 for a total of $2 in circulation.

These "typos" make it difficult to understand what you are trying to say.
 
Somebody puts $1, the bank lends out 50c. That's already $1.50 out there. Then the 50c gets deposited and another further 25c gets lent out (total is now $1.75) etc etc. Eventually the total money out there is $2.
Then say that. Specifics matter.
This money build-up occurs when the bank is making cash loans (the bank can't lend out all its reserves at once). If (as is more usual) the bank is simply making a deposit into the borrower's account then the process can be short circuited and $1 lent out immediately.

These "typos" make it difficult to understand what you are trying to say.
Agreed and I usually try to keep them to a minimum but sometimes . . . . . .
At least you know what my original point is now.
 

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