Banks don't create money out of thin air, only the central bank does. Just think for a millisecond, if Lehman had the power to print money, why didn't it use it to bail itself out ? Well, Lehman could not print itself out of trouble. That's because in order to print money, depositors need to enable the bank to do so, by letting it have their money. The depositors themselves create the money by treating the bank deposit as a money substitute: the "real" money are lent out, and the depositor is left with something of questionable liquidity depending on the bank's health.
Read that last line over and over if you are one the "banks print money out of thin air !" pinheads. The deposit you hold with the bank is not money, you have purchased a highly liquid security that gives you a profit in exchange for accepting a risk of default, and that risk is much higher than we've commonly been led to believe. If you want to convince yourself that deposits are not money, just try to deposit your deposit at another bank (and that metadeposit at yet another bank, and so on up to infinite interest) . The other bank knows a deposit is not money, and will kick you out of the building.
This phenomenon happens just as well with a non-fiat currency: a gold receipt is not the same thing as gold, but the apparent gold quantity circulating in the economy can increase if people treat gold receipts as gold equivalents. Fractional reserve banking is not the product of fiat.
Topic: A Professional Video about Fiat Money - page 2. (Read 2435 times)
Excellent video. This is about the 3rd video that I have watched about "money" since I discovered the bitcoin community and those of you who like to spread knowledge about how money really works. I've learned more about money in the last 6 months than I have in the last 28 years. The truths still shock me.
From the YouTube description:
http://www.youtube.com/watch?v=hx16a72j__8
Watching it reminded me of the 'What is Bitcoin?' video. I would like to see more videos like these made about Bitcoin and the Bitcoin economic experiment.
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Despite every effort by governments, the gap between rich and poor continues to grow. It is now the biggest it has even been in history. All sorts of reasons for this have been proffered, but few, however, seem to realise that is a simple, inevitable consequence of our system of money and credit. This video, a shorter version of which appears in the film The Four Horsemen, explains ...
http://www.youtube.com/watch?v=hx16a72j__8
Watching it reminded me of the 'What is Bitcoin?' video. I would like to see more videos like these made about Bitcoin and the Bitcoin economic experiment.
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