IS THIS HOW USD IS CREATED? - page 2.

deisik

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Quote from: o_e_l_e_o on July 26, 2019, 05:02:34 AM

Quote from: deisik on July 26, 2019, 01:54:55 AM

It is still a collaterized form of money, i.e. money backed up by tangible assets

How is it, though? If I apply for a loan of $1,000, the bank simultaneously gives me a credit of $1,000 and a debit of $1,000. I get $1,000 of new money in my account to spend, whilst also having an outstanding bill for $1,000. Nobody gives the bank any assets to back up that $1,000 they have just created. No money or assets are added to their reserves. The only thing backing up my new $1,000 is a promise that I'll pay it back in the future

No bank will give you anything on an empty promise

But I think you know that better than myself (though I know that too). The word collateral is there for a reason, and all banks will require you to secure the loan by providing liquid collateral for it. If you fail to return the money borrowed, the bank will take the collateral and sell it. Indeed, its price can drop in the process, but that's why loans are typically overcollateralized. Sometimes it doesn't help, but it is a completely different story

Quote from: o_e_l_e_o on July 26, 2019, 05:02:34 AM

Quote from: deisik on July 26, 2019, 01:54:55 AM

So the second form of credit money is better for the economy because money gets created (and destroyed, for that matter) according to the needs of that economy.

Creating money out of thin air simply because there is a demand for individuals and businesses to have more money is neither good for the economy nor sustainable long term

As long as the money thus created is properly collateralized, this is a non-issue and technically not much different from a hard currency backed up by gold

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Quote from: TimeBits on July 24, 2019, 01:39:25 PM

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?

Wait what? The government does not loan on banks. Government loans on other country with collaterals or dues which has a percentage of interest. Not only that, this loan depends on gold reserves of a country and this is not a regular banks they do the loan.

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Quote from: deisik on July 26, 2019, 01:54:55 AM

It is still a collaterized form of money, i.e. money backed up by tangible assets

How is it, though? If I apply for a loan of $1,000, the bank simultaneously gives me a credit of $1,000 and a debit of $1,000. I get $1,000 of new money in my account to spend, whilst also having an outstanding bill for $1,000. Nobody gives the bank any assets to back up that $1,000 they have just created. No money or assets are added to their reserves. The only thing backing up my new $1,000 is a promise that I'll pay it back in the future.

Quote from: deisik on July 26, 2019, 01:54:55 AM

So the second form of credit money is better for the economy because money gets created (and destroyed, for that matter) according to the needs of that economy.

Creating money out of thin air simply because there is a demand for individuals and businesses to have more money is neither good for the economy nor sustainable long term.

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Quote from: semobo on July 25, 2019, 04:28:16 AM

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.

Also the reason why inflation rates in some countries are beyond the skyline and people are thinking how to get their daily bread earned without going broke and also having enough money for daily expenses. Some countries have been able to control it although partially and temporarily but the things keep breaking out every now and then causing panic in the general population. Sad

Printing of fiat continuously have been the reason of inflation and economic collapse, but then again governments dont want to recognize this as a threat or look for alternatives to correct this problem.

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Quote from: Kakmakr on July 26, 2019, 01:22:23 AM

Quote from: deisik on July 24, 2019, 02:35:23 PM

Quote from: SuperPandaBear on July 24, 2019, 01:52:56 PM

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

Agreed, but what difference is there between creating money from thin air by using Fractional reserve practices or by doing this by creating "fake" money via credit? Adding some numbers on an internal ledger to give more credit are exactly the same as adding additional money by lending money that you did not receive via deposits

It is a difference that makes the difference (and vice versa)

You seem to be looking at it from the wrong angle as you implicitly assume that credit money is inherently wrong or even evil. The money created via credit is not "thin" money, so to speak. It is still a collaterized form of money, i.e. money backed up by tangible assets (think of it as an extended and expanded variety of the gold standard). But with "classical" FRB you are limited by the deposits, while with purely credit money you are only limited by the demand for credit. So the second form of credit money is better for the economy because money gets created (and destroyed, for that matter) according to the needs of that economy. Simply put, it is a better device and more robust mechanism for providing liquidity to economic agents, i.e. those who need this money (businesses and individuals)

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Quote from: deisik on July 24, 2019, 02:35:23 PM

Quote from: SuperPandaBear on July 24, 2019, 01:52:56 PM

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

Agreed, but what difference is there between creating money from thin air by using Fractional reserve practices or by doing this by creating "fake" money via credit? Adding some numbers on an internal ledger to give more credit are exactly the same as adding additional money by lending money that you did not receive via deposits.

The Banks and the Reserve Banks are cooking the books to create money from thin air and that is the crux of the matter. Bitcoin are often criticized for creating "digital" money from thin air, but this is predetermined and fixed supply, not something that can be changed without majority consensus. < This is why BankCoins are so dangerous, because the Banks have control over the supply of these tokens. >

deisik

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Quote from: darklus123 on July 25, 2019, 06:18:40 PM

Thank you so much for this information. I realized now that it might be the main reason why you can't just withdraw as much as you can on a certain bank(I am referring to the maximum cash withdrawal per day). Because they were trying to protect a possible bank run. I can now differ to a bank's capabilities on how much their reserves are performing the higher the maximum with per day the higher the reserved that they have

These limits are for cash withdrawals only

But since it is lawful and legit to cash out freely for individuals (but not for businesses), banks have to set the limits as it would be extremely impractical to keep so much cash in their vaults on a day-to-day basis. If there is a need for more cash, banks ask for it in the Central Bank's cash department in the area of the bank's residence but that takes time, hence the limits (apart from AML policies and other such stuff). Again, this has nothing to do with the idea of a textbook FRB as this is more about how a currency is run in real life

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Quote from: darklus123 on July 25, 2019, 06:18:40 PM

I think a possible bank run will never happen in the Philippine banks. Because aside from having a maximum daily withdrawal on the atm machines. The slower services will affect the total number of people who can withdraw during that day period

It is still possible if everyone withdraws on the same day because banks have limited cash available for short term withdrawal. You could also check its solvency/current ratio to know whether your bank is healthy or not.

Anyway, don't worry too much about a bank run because the probability is low. Hence, it would be more beneficial if we talk more about inflation/debasement part of this discussion.

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Quote from: o_e_l_e_o on July 24, 2019, 02:23:39 PM

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.

Thank you so much for this information. I realized now that it might be the main reason why you can't just withdraw as much as you can on a certain bank(I am referring to the maximum cash withdrawal per day). Because they were trying to protect a possible bank run. I can now differ to a bank's capabilities on how much their reserves are performing the higher the maximum with per day the higher the reserved that they have.

I think a possible bank run will never happen in the Philippine banks. Because aside from having a maximum daily withdrawal on the atm machines. The slower services will affect the total number of people who can withdraw during that day period

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Sounds more like fractional reserve banking. I think banks and most countries do it.
The biggest fraud however is the printing of money in secret to live beyond one's means. The abomination is by far worse than the worst fraud in Crypto space and it is most likely practice by all governments. In my opinion, if you take this away from them, poverty will most likely cease to exist

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Better to loan money from your own central bank then order them to print more USD for you. You are just devaluing your own money by that method. Just look at Venezuela or the classic story of Zimbabwe's hyperinflation and see where did it go from their. That's why you will always see them ask for loans with the lowest interest as this gives them enough room to pay them back on the certain period they have. Even if the debt is rising still they are able to pay back woth the projects, jobs, educations, and other developments they have given for their own country.

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Quote from: Indamuck on July 25, 2019, 08:12:05 AM

This is why assets will continue to pump while poor people remain poor. They will keep printing money to prop up the stock market and housing market while people with cash in the bank are the biggest losers from this. People have so much faith in the usd but it is really just an illusion run by rich people.

People with money in their bank account shouldn't complain about losing purchasing power because we have enough historical evidence that the best course of action is to invest, especially in the current market.

People not that long ago thought that the US stock market was about the implode, but it jumped back up to hit new all time highs. It's safe to say that as long as the money press is running, the stock market will inflate even further.

It's almost irresponsible to not invest in the stock market with a chunk of your fiat. Cheap money will always end up in the stock or real estate market for the most part, and luckily, also in Bitcoin in the more recent years.

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Quote from: TimeBits on July 24, 2019, 01:39:25 PM

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?

As you see, almost every country has loan from each other which is a huge amount of money in overall, so how? Imagine we are 3 person and I have loan from you, then you have loan from person B and person C has loan of me. If we have loan of 50$ from each other, it can be considered as 0 but as we see, countries have really a huge amount of money as loan. So how is that possible? That's why I amn't fully against printing USD by USA, seems there isn't enough money in this world.

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Quote from: joniboini on July 25, 2019, 06:58:45 AM

Quote from: semobo on July 25, 2019, 04:28:16 AM

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.

Crashing might happen only if hyper inflation or else people won't acknowledge it because the inflation rate is just same as the interest rate of banks so which means banks are collecting our money and just keping it.People are also not good at learning how this sytem works.

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This is why assets will continue to pump while poor people remain poor. They will keep printing money to prop up the stock market and housing market while people with cash in the bank are the biggest losers from this. People have so much faith in the usd but it is really just an illusion run by rich people.

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Yes. That is how it is done.
Only the banks can create it but the government have the authority to make it happen.

I dont know though if banks can create on their own. I bet they cannot.

That is why you can tell banks and government are like one only or they will keep the bank safe for they have loans from it.
Government will pay it by the means of tax and then Voila the banks have money again to loan someone else.
Who wins here?
You want to create a banking business with me? Grin

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Quote from: semobo on July 25, 2019, 04:28:16 AM

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.

semobo

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Quote from: TimeBits on July 24, 2019, 01:39:25 PM

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.

deisik

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Quote from: odolvlobo on July 25, 2019, 03:41:05 AM

Quote from: deisik on July 25, 2019, 01:13:02 AM

Quote from: odolvlobo on July 24, 2019, 06:57:53 PM

Quote from: deisik on July 24, 2019, 02:35:23 PM

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

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Quote from: deisik on July 25, 2019, 01:13:02 AM

Quote from: odolvlobo on July 24, 2019, 06:57:53 PM

Quote from: deisik on July 24, 2019, 02:35:23 PM

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.

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