Topic: Basics of the Current Monetary System (Read 408 times)

Due to the high lack of control of the FED, and of the government as such, then what management can it give to that organism if it allows politicians and banks to do that economic bleeding, because practically that is to steal with a license, where are the laws that protect people and their protection based on the most basic rights? The US economy is clearly down for a long time and that is what many skeptics had predicted since 2018, what about the government's actions? I understand that one of the most incorruptible countries was the USA, but apparently they have problems as big as those of third world countries, with the exception that the USA can still cover those gaps, but there will come a time when they will not be able to do so, and there it is. where a decline will come, which from what I see is very evident.

The reserve requirement for US banks is still zero percent, since March 2020:

The easing of liquidity constraints was implemented to provide banks with greater flexibility during the pandemic. Now that the pandemic is over, what is the excuse for maintaining these reserve requirements?

You could drop the deficit by sooo much if you could tax the rich properly. And I do not mean like do not give them tax cuts or anything, which nobody should do anyway but also tax them higher in federal ways as well.

Amazon paid zero federal taxes so many years, or so that is what I have been told at least, which means there must be so much tax that is gone just because they do not pay federal taxes, not just amazon but god knows how many companies. Plus when your stock portfolio goes up and you do not sell your stocks, you do not pay much tax I believe, or that is what I believe is the case in USA, I am not from there so these are all from what I read.

All these combined plus a LOT LESS military spending would mean that you would both get a shit ton of taxes coming, no breaks for the rich, and a lot less military spending equals ton of surplus let alone any deficit. It is actually "easy" for USA to not only have a tax surplus but also pay all their debt and have money left over.

Not everyone has the same level of understanding of the monetary system today, but it's true it's a bit late if people don't understand it on this forum.  Ok skip, actually what I think is that the current monetary system has plunged many people into not understanding that their assets are not doing well.  How can people believe in saving with billions of funds when the funds are processed by the bank and distributed to parties who want to owe for various things.  Currently, the monetary system is controlled by the media, so gossip in many countries due to the COVID-19 condition does not seem to pose any risk.  Even though the crypto system has not been tested to replace the current system, we are still optimistic in the future that BTC will still be able to answer various problems caused by fiat.  .

There are a lot of basic misunderstandings which are widely held. Such as when you say printing money - most people believe the government or the Fed are responsible for the majority of new money being printed, when actually upwards of 90% is created by banks handing out loans. These loans are only indirectly controlled by the Fed, by them setting interest rates, reserve requirements, etc.

You also mention fractional lending. Most people believe that banks can only lend out x times the amount of money they have, depending on the reserve requirements set by the Fed. Not only are these reserve requirements 0% (and not 10%, as most people still think), but reserve requirements were never a restriction on how much banks can lend.

People talk about 1 or 2% pay rises, when really they should be talking about pay cuts, because they don't understand inflation. People don't understand the deficit, or the debt, or the debt ceiling.

The bottom line is easy to understand - your fiat is steadily worth less and less, your wages are steadily going down, your purchasing power is steadily eroding, all while bankers and politicians become richer. But the convoluted route that it takes to arrive at that conclusion is anything but simple.

Seriously, I do not think this is complex at all.

Seriously, I do not think this is complex at all. You have monopoly money that can be printed and a system to get it back when it suits you. Usually, that means nearly never gets called back.

Interest rates... what's difficult? It is the price of borrowing money, not that complex to understand right? An on regards to fractional lending, it means that the bank can lend more money than it really has - Is there anything I am missing.

You what is difficult for me? That after knowing all this facts, there is still people that argue that "bitcoin is not as good a money"

Seriously, I do not think this is complex at all.

Interest rates... what's difficult? It is the price of borrowing money, not that complex to understand right? An on regards to fractional lending, it means that the bank can lend more money than it really has - Is there anything I am missing.

Right now it is behind a bunch of paperwork, but with blockchain it would be easier to see what they are spending money on.

Plus, we get to see their wallets as well and how rich they are getting from stuff, if they hide it then it is illegal

we put them in jail or take all their money

Bitcoin is not a magic bullet which will instantly fix all the corruption and ridiculous monetary policy present in Washington. Theoretically, it would prevent the government (and banks) from lending money they don't have, but that's only if people hold their own bitcoin and don't rely on third parties. If I want to take out a loan and hold the bitcoin in my own wallet, then obviously the bank has to send me real bitcoin which they own. If I take out a loan and am happy to hold my bitcoin in a bank wallet or accept some fake wrapped bitcoin or pegged token, then there is nothing stopping them from continuing with the fractional reserve system.

Everything begins when the government starts creating bonds. These bonds are essentially meant to be sold with an interest. It's like saying “Hey, give me some trillions of dollars and I'll pay you back in a decade plus an interest”. These bonds are our national debt, because we're the ones who're going to pay them in the future.

The bond is then auctioned and the world's largest banks buy it to receive the sweet interests. The banks then swap those IOUs with the Federal Reserve's checks which brings money into existence. It looks like this:


So what's actually happening is that the FED and the treasury swap IOUs (checks & bonds) with banks as middlemen. This process continues repeatedly enriching the banks and indebting the public by increasing the national debt.

When you're depositing money in a bank, you shouldn't imagine that they're keeping those money in a safe closet. Instead, they loan it to other people, so you should consider that you're actually loaning them your money.

Now what's fractional reserve lending... It's exactly what it says. The banks are allowed to reserve only a fraction of your deposit and do whatever they want with the rest of it. According to Modern Money Mechanics the reserve ratio is 10%, so let's use this simple percentage in our example.

Let's assume you deposit $1000. The bank can now take $900 of those and lend them to someone. It is reasonable to think that these $900 come out from your $1000. However, that's not the case. What really happens is that these $900 are created out of thin air on top of the $1000. This is how the money supply is extended. Bare with me.

The bank creates a check (a liability) saying that you own $1000 even though, they have only kept $100 of your deposited dollars. The other $900 have been lent. Once the borrower deposits their $900 hard cash in their bank, the bank will give them a liability of $900, but will also keep only 10% of it. The bank can also lend those $810 and keep only the $90.

NOTE: The liability is an IOU. It's nothing more than that, but it is considered currency since it's used as medium of exchange instead of cash.

If we continue this further we can notice that there's always some liability which is 10 times greater the assets you deposited and your bank is keeping.

Seriously, the cash remains the same. It's $1000. But, they liability constantly rises; it's $1000 + $900 + $810 + + + ... = $10000.

As a conclusion, the currency supply expands. Specifically, around 92-96% of all the currency supply is created from this very procedure and not from the government.

Bitcoin is just the beginning of the differentiation between the government and the money. It won't lead to a better life judging with the current political behavior. Agreed?

I have read somewhere bitcoin for the currency and Bitcoin for the ecosystem / network?

what do you think about monero's potential?

Reserve requirements are (or were, before we moved to an "ample reserves" model) a way for the Fed to influence interest rates and liquidity by requiring banks to loan money from them at end of day to meet the stated requirements; they were never a method for the Feds to regulate banks' activities or dictate how much they were "allowed" to lend.

What does it mean when they say raising the debt ceiling? I have heard it on the news that Biden administration is planing to do.

Did this debt system started when Nixon take out gold in the equation or its already been there since the bank started?

Isn't bitcoin's usage suppose to discourage them due to this control loss?

At this point everyone can create money out of thin air as long as there's trust to this person. So, the root of the problem is the banks' policy. This 0% reserve requirement is disgrace. How's the things there in USA about this? Is there concern from the citizens?