How the banks create money

[Tippit]

Could you source that $200B in expenses claim for us please? Nowhere in any Fed report anywhere can I see $200B in operating expenses. This report:

http://www.federalreserve.gov/boarddocs/rptcongress/annual07/sec2/c3.htm#nl7

states that operating expenses were $3.2B-$3.5B in 2006-2007.

The net income (before payments to Treasury) for the Fed in 2007 was $38.7B of which $34.6B was returned to Treasury.

I stand corrected. I think the last time I actually looked at their annual report it was closer to $2B. $200B, or 1/5th of a trillion dollars would be excessive even for an institution like the Fed. The point is, however, as Thomas Edison said, the same element that makes the bond good, makes the bill good. Treasury could eliminate the middle man and simply print it's own money and save the public that $3.5B.

The Fed's operating expenses of course aren't where the real action is, that would be their $2.364 trillion funny money balance sheet consisting of garbage they disposed for their wall street buddies. Each dollar of that represents at least a dollar of purchasing power stolen from the American public, far more when you consider the subsequent private bank inflation that resulted.

What is this then?

http://www.newyorkfed.org/markets/omo/omo2009.pdf

That looks like an unaudited report. Pardon me if I don't trust what the Fed says.

 

[webb5]

Haha, I hardly like banks. Indeed they annoy me more than most types of private enterprise. However that doesn't mean I will tolerate liars and frauds who need to peddle false and misleading information in order to make points. Your refusal to accept the fact that the CBA was government-owned until sold off in the 90s is but one example where you are unable to reconcile your childish fantasies with reality.

This is further proof of your lies and refusal to understand what is written. Australia’s own government-established Commonwealth Bank achieved some impressive successes while it was ‘the peoples’ bank’, before being crippled by later government decisions and eventually sold. You are getting mixed up again

 

[psionl0]

Private banks are a complete opposite to People Banks. Even though our governments around the world allow them to operate the way they do it is a very fraudulent practice. Fractional Reserve banking allows banks the ability to create money out of nothing to enslave us with debt.

I see. When privately owned banks do it, it is called "fractional reserve banking". When government owned banks do it, it is called "social credit".

 

[webb5]

That has been stated many times before on this forum in different fashions, but the assumptions behind the logic are fallacious. Population increases ultimately increase production, and have a deflationary effect. I've explained before why I believe the anti-deflation hype espoused by contemporary economists exists, and that is to justify the lucrative inflation tax. There is no good reason why, given population increases, we cannot simply let the dollar adjust and rise in value.
I understand what you are saying here but in reality it would not work. As in any population growth there are new costs involved such as new infrastructure, schools, housing, roads, railways etc needing more loans, new money needed. If the population increased without this need it would be easier but will cause great hardship for many people until it evens out, and that is not a sure thing.

It is possible to have economic growth with declining prices if the fall in prices is the direct result from improvements in productivity through advances in technology. This is particularly true when technological innovation boosts productivity faster than prices are falling, so that profit margins are not negatively affected.


A social credit scheme that first robs the saver in order to redistribute productivity gains depends exactly on how it is redistributed, and it will be imperfect by definition. That said, it would probably be an improvement from the status quo, depending on what exactly you are advocating.
The decrease in the money supply will increase the value of savings. The increases in the money supply to correct quantities will even things out with no change in the buying power of savings.


No, this is limited by the reserve requirement ratio. The simple money multiplier is the reciprocal of the reserve requirement ratio. If we assume the RRR is 10%, then the SMM is 10, which means for every dollar in the monetary base, there are a maximum of ten dollars in the banking system. There are a few other factors which may result in a lower real multiplier, but the aggregate loans are restrained by this process.

???

What you're describing is a variant of the "debt virus" hypothesis, which has been debunked. The simple answer is that banks have employees and shareholders to pay, who then spend or invest that money back into the economy, it doesn't disappear into a deflationary "black hole".
As I mentioned before bank fees take most of this cost. There is still some interest and compound interest left taken out. This money does not disappear, it magically becomes a deposit for more fractional reserve banking

The problem with public debt is that it is foisted on the public without consent, and that eventually it can become unservicable leading to the problems that you are seeing in Greece, Spain, and Ireland. Since politicians' appetite for spending persists regardless of their constituents ability to pay, they have and will continue to debase the currency in order to fund their largesse.

Nothing to do with the banks then

 

[webb5]

I see. When privately owned banks do it, it is called "fractional reserve banking". When government owned banks do it, it is called "social credit".

Social credit does not use fractional reserve banking.

 

[psionl0]

Social credit does not use fractional reserve banking.

Banks create the money they lend out. This is true whether they are privately or publicly owned.

 

[webb5]

Banks create the money they lend out. This is true whether they are privately or publicly owned.

Of course this is true, the difference is that the private banks are profiting by creating the worlds money supply as debt fraudently out of nothing using fractional reserve banking. While government run banks using social credit create new money on the basis of real wealth for the good of the population. One creates the cycle of debt the other does not.

I think you are having problems in accepting this because you are putting too much importance on money. We must remember that money only has value because of our faith in it, without this it is worthless. The real wealth in this world is in the land and what we make of it, ie farming, building, industry, mining, etc. That is why the banks are doing there best to get their hands on it

The role of money is to provide and easy medium to buy and sell things. It should be provided in correct amounts as required on a scientific basis. The only problem here is that this medium is controlled by the banks. Thus the wealth of this world is being manipulated by the banks.

 

[psionl0]

A government owned bank creates money and lends it to the government. The government "invests" (wisely we hope) this money into the community. Sooner or later this money ends up in banks (private or public) and these banks will do their own fractional reserve practice creating even more money (as debt).

In the US, this government owned (we think) bank is called the "Federal Reserve" while in Australia (100 years ago) this bank was called the "Commonwealth Bank". Yet in one case, you say "fractional reserve banking" and in the other you say "social credit" even though the mechanism is the same in both cases.

Until you actually address the practice of fractional reserve banking at all levels, all you are calling for is the right of privately owned banks to continue to create the majority of our money from thin air as debt.

 

[webb5]

A government owned bank creates money and lends it to the government. The government "invests" (wisely we hope) this money into the community. Sooner or later this money ends up in banks (private or public) and these banks will do their own fractional reserve practice creating even more money (as debt).

In the US, this government owned (we think) bank is called the "Federal Reserve" while in Australia (100 years ago) this bank was called the "Commonwealth Bank". Yet in one case, you say "fractional reserve banking" and in the other you say "social credit" even though the mechanism is the same in both cases.

Until you actually address the practice of fractional reserve banking at all levels, all you are calling for is the right of privately owned banks to continue to create the majority of our money from thin air as debt.

Under social credit, private banks will no longer be able to create money. Only the government will have this function. Trading banks have a valid place in free society. Those starting new enterprises or building new homes need to borrow. But borrowing has inherent dangers. Given too much powers, lenders can dictate terms that are unfair and tyrannical to others.

The tyranny is called usury. The best safeguard is to have a competitive system in the lending arena. A government monopoly would be just as dangerous as the existing private monopoly.

But lending is a function quite distinct from the creation of additional money, where this is required. That should be a government function, tied to a properly-audited model. Government should not have the right to claim ownership of such money increases as are necessary. They belong to the members of the community as a whole, and should be credited, rather than loaned into existence.

 

[webb5]

Why do we let it happen!

Counterfeiting it is a crime that has been around since ancient times. The act of copying and printing fake currency is just about as old as currency itself. At one point counterfeiting was so serious and widespread that it was considered treasonous and punishable by death. This was because many believed that anyone who disturbed the market with fake money was putting the nation’s economy and its general stability and strength in serious jeopardy.

But what if an organization was able to counterfeit money in a grand scale locally and internationally and get away with it. It could be argued that this organization is doing a service to society because they have increased the money supply without debt. Under certain conditions that may be true, But generally the community is now poorer because this organisation has stolen their share of this wealth. There is no reason to promote a crime such as this.

The fact that people accepted these forged notes, in place of government money, would not make it right. It is still a criminal offence. Both forgers and the banks produce and issue to the public, at very little cost to themselves, the means of payment and both do it for the purpose of enriching themselves. Neither has sufficient issue legal tender to fully back what they issue. The forger is rightly regarded as a common criminal. The bank on the other hand is regarded as an estimable and honorable institution. They are in affect holding us at ransom the right to run our own economies. We must retake this back.

What I am saying here is that the private banking system is a criminal activity sanctioned by our governments. The laws that apply to forgers should also apply to these criminal organizations (private banks). They are the cause of so much poverty. More and more people are starving in this world than ever before.

It amazes me why people are soo apathetic on such an important subject as this that affects the whole of humanity. As Edmund Burke said "Evil flourishes when good men do nothing."

 

[psionl0]

I don't understand your last two posts webb5. If you believe that we should have full reserve banking with only the government being able to create money then why not say so? Bank reserves belong to the depositors - not the banks. It should be considered a breach of trust to lend out depositors' money without their knowledge and consent - especially if they say the depositor can still access his or her money after it has been lent out.

The only reason that the government set up the commonwealth bank and lent money to itself is because under the gold standard, it could not print the money itself. Now that all currencies are fiat, no such restriction exists. The commonwealth bank model may have worked well in the early years but it is not a good model for what you call "social credit".

 

[webb5]

I don't understand your last two posts webb5. If you believe that we should have full reserve banking with only the government being able to create money then why not say so? Bank reserves belong to the depositors - not the banks. It should be considered a breach of trust to lend out depositors' money without their knowledge and consent - especially if they say the depositor can still access his or her money after it has been lent out.

The only reason that the government set up the commonwealth bank and lent money to itself is because under the gold standard, it could not print the money itself (???). Now that all currencies are fiat, no such restriction exists. The commonwealth bank model may have worked well in the early years but it is not a good model for what you call "social credit".

Sounds like you have a problem with social credit. All along this forum I have discussed the fraudulent process of fractional reserve banking. I have mentioned here that Social Credit could be used as an alternative to create the nations money supply instead. This money would be created by the government on the basis of real wealth not debt. I have not mentioned the word ‘full reserve banking’ because I assumed I did not need to. How else can the trading banks operate if fractional banking is made illegal by our governments? I am sorry for not making this clear. I also added a website to help people understand this. www.bleedingindebt.com

The Commonwealth Bank model is a very good model to show how social credit works. It shows how a country can finance its economy by using the wealth of the nation (Its resources). If a country creates money without representing anything of value is just printing money. It may be better than fractional reserve banking but not much better; it would lead to turmoil all round the world. Social credit is about real wealth not debt. Money credited to the nation on the basis of its resources and ability to make wealth is a far better way. The Guernsey Market Scheme was another example of Social Credit.

 

[Sceptic-PK]

It's just pathetic now.

 

[psionl0]

I still don't understand "social credit". What are you proposing webb5? Nationalized banking?

 

[webb5]

I still don't understand "social credit". What are you proposing webb5? Nationalized banking?

I am proposing Social Credit, A People's Bank. A National Bank owned by the people using Social Credit.

 

[psionl0]

I am proposing Social Credit, A People's Bank. A National Bank owned by the people using Social Credit.

I presume that means you want to abolish or nationalize privately owned banks.

 

[webb5]

I presume that means you want to abolish or nationalize privately owned banks.

This means the banking system will be completly changed to what it is now. A new government bank run as a People's Bank is the first important step.
Some of the private banks will dissapear but trading banks will still be able to operate

 

[psionl0]

Under social credit, private banks will no longer be able to create money. Only the government will have this function. Trading banks have a valid place in free society.

How else can the trading banks operate if fractional banking is made illegal by our governments?

Some of the private banks will dissapear but trading banks will still be able to operate

The way you contradict yourself suggests that you don't really understand what we are talking about.

 

[webb5]

The way you contradict yourself suggests that you don't really understand what we are talking about.

Your last comment suggests you have lost all understanding what Social Credit is all about. There is no contradiction here you simply do not want to understand.


Under social credit, private banks will no longer be able to create money. Only the government will have this function. Trading banks have a valid place in free society using full reserve banking!
How else can the trading banks operate if fractional banking is made illegal by our governments? no comment needed!
Some of the private banks will dissapear but trading banks will still be able to operate. I expect that after this criminal activity of fractional reserve banking is made illegal by our governments many will shut down

 

[webb5]

The increase of the money supply in 1939

Have a read of this;
When the war broke out in 1939, the Government, which for the last ten years had been short of money, went to the banks to carry out a first loan of $200 million. The banks did not have any more money than they had had the day before. For the last ten years, the population had been lacking money. When one is lacking money, one hardly has any surplus to bring to the banks.

Nevertheless, the banks loaned $200 million to the Government. They wrote to the Government's credit $200 million in bookkeeping money. And the young people, who had been wandering about aimlessly for years because there was no money, were called immediately by the Government, dressed from head to toe, lodged, fed, equipped, and transported to Europe to take part in the slaughter.

And this was seen in all the countries of the world. The world had suffered from unemployment for ten years, due to the scarcity of money, lead to The Depression. This same world was able to fight a very costly war, because the banks had created all the bookkeeping money that was needed to finance the war.