@raucao It does not and is not an attempt at illustrating the fractional reserve part of the system, so you are correct it does not illustrate the "money multiplier" effect
However it isnt entierly accurate to say that they are loaning out money they dont have. They have the money in their vault, the agreement you make with a bank when you deposit the money is that you are loaning them the money and they are free to do with it whatever they want, including loan it to others. So it is absolutely their money to loan, you gave it to them for that purpose.
The deal you made with the bank is basically that they are allowed to loan out your money for as long as you keep it deposited and in return they will pay you a percentage of interest on your money as a sort of profit sharing on the money they make off being able to loan your money. In addition to that they will offer you the service of protecting your money.
So while you arent wrong your wording seems a bit disingenuous to me.They have the money, they took the loan from you and in exchange use the money they loaned and loan it to others.
@freemo That's not how it works, sorry. In fractional reserve banking, the bank actually does not lend out deposited money (for the most part). It lends out money that wasn't ever deposited, beyond the reserve requirement, which is as low or lower than 5% in most countries at the moment.
What you describe is the romantic version of banking, which is being taught in school, and which we all wish would be the case. But it has no connection to today's actual banking and money creation reality.
@raucao Thsi is one of my areas of expertise, so I can say quite confidently yo uhave the finer details wrong but you do seem to have read up on this because you are using many of the words 90% correctly. So I do appreciate youve tried to put time into learning this stuff and not trying to knock that,.
That’s not how it works, sorry. In fractional reserve banking, the bank actually does not lend out deposited money (for the most part). It lends out money that wasn’t ever deposited, beyond the reserve requirement
This isnt true, when you “beyond the reserve limit” the technical term for that is “Excess reserve”. It is money they have, it is cash sitting in their account at first, that cash can be obtained either from the fed throught he resale of bonds or from deposits.
The excess reserves are money they actually have on their balance shit either being held from a depositor or their own cash obtained from the feds. They can then loan out that excess reserve at which point they dont have the cash themselves anymore on their personal bank balance sheet but you, as the depositor keep it on your balance sheet.
So its actually the other way around, the bank is loaning out money they have (they got it from you or the feds).. it is you who claims to have money you dont have… the balance on your checking sheet is 90% higher than the actual funds you have waiting in reserve int he bank (and you agreed to that being the case when you gave it to them).
@freemo Now you describe it a bit more correctly, but if you think about what you just said, it is not you who is certifying that you have that money, it is the bank. As you most likely do not have that money yet (according to pretty much all statistics about money supply), it is therefore the bank creating that money on paper when you borrow it from them.
@raucao thats sort of true.. for starters we have to be clear what "money" means.. money is not phsyical notes, if you are talking about physical notes then it has a different term "Monetary Base".. but up until the intention is that we are talking about total money supply, if i have misunderstood what you are saying in this regard please stop me now.
with that said, what the bank is really doing is keeping a reserve on hand that statistically should be enough to cover all expected with draws by all clients... while the money ont he balance sheets is quite a bit less than the total balance of all their clients, it is more than enough to handle any withdraws they make.
What is special about the situation, and why the bank can pretend it has more money than it has by putting on your balance sheet when you dont have it, is because they personally guarantee the difference, and this is backed up by the feds who DO have as much money as they need to back that up.
So in the unlikely event that a bank experiences a much higher than expected number of withdraws they are still more than capable of giving you your money and they will simply take a loan out from the central bank to cover it temporarily,a nd the bank will take the interest penalty themselves as it was their mistake...
So in all reality it isnt really just infinite money out of nowhere, it is backed, and backed with collateral, so it is secured.
@raucao Next your going to tell me the central bank makes money off you ::rolls eyes:: never mind the fact they cant legally hold a profit by definition and any profit it makes must be forfit...
Gotta love the central bank conspiracy theorists.
@freemo That's nonsense. Almost as much as what you just described being anywhere close to realistic in practice.
@raucao haha Q.E.D. then.
The degree of anti-fed conspiracy is always proportional to the ignorance of the person it seems.
Not only is it federal law they cant keep profits, not only have they in the past had to give those profits back to the US treasury, but it doesnt even have owners in the typical sense. The people running the fed are selected each election by the elected president. Those in charge do not get payouts from profits as an owner would either, they get paid and the amount they are paid is not related to the amount of money the fed itself deals in.
Literally nothing about the fed is in line with the usual conspiracy nonsense you hear but it seems the less people know about the process the more prevalent that thinking is.
I really dont mind if you wish to hate the fed or anything else. But please try to understand the things you hate at a minimum, because otherwise you just waste everyone's time.
@freemo I never said anything about the Fed profiting off of this. You're putting up a conspiracy strawman here. Just because you believe in the wacky MMT-style "the system cannot fail, because the Fed never runs out of money" theories, that doesn't mean you understand the fundamentals of this better than people you apparently have to put in a conspiracy drawer to avoid your own cognitive dissonance.
@raucao Central Bank is another term for the Fed... You told me it was "nonsense" that they arent allowed to hold profit... ergo, yes, you make a remark about the fed.
@freemo You said something about me saying they're profiting, then I told you that what these people say is nonsense.
@freemo I never proposed that direct profit is a motive for central banks at all. You started that nonsense, so I said it's nonsense.
@freemo I said "central bank fairy tales" to your wacky MMT theory, which has been disproven many times in history.
@raucao I said absolutely nothing in support of MMT and the views I proposed were not the least bit in line with MMT. Nice try though.
@freemo You probably don't even realize how your own explanation is literally the foundation of MMT?
@raucao Seeing as your quoting me as saying things I did not say at any point in the conversation and paraphrasing my stance in a way that in no way reflects my stance, it is no surprise you are similarly confgused about any similarity between my stance and MMT. Clearly you dont even know what my stance is, let alone how it may or may not be similar to MMT.
> when you dont have it, is because they personally guarantee the difference, and this is backed up by the feds who DO have as much money as they need to back that up.
> So in the unlikely event that a bank experiences a much higher than expected number of withdraws they are still more than capable of giving you your money and they will simply take a loan out from the central bank to cover it temporarily
@raucao yes neither of those statements come even close to the paraphrasing or psudo-quotes you attributed to me... Notice I never say anything about the fed not being able to fail by printing money.
I am also clearly talking about singular bank and not a mass run on **all** banks (notice the word bank is singular there). What I am describing is not just accepted fact, it is the norm and happens daily.. When a banks reserve dips below the required minimum this is exactly what they do, they just get a garunteed short term loan from the Fed to cover it which they correct through one of several means then return it.
So yea, nothing I said is even remotely MMT, it is, in fact, simply the cold hard fact of what takes place consistently in the banking system.
@freemo Running low is normal, but banks run never just happen to a single bank. The mere fact that you acknowledge that a bank run would create problems means that your original counter argument is now null and void. My original point is thus proven, which was that private banks print money into existence, which they do not have in the first place.
he mere fact that you acknowledge that a bank run would create problems means that your original counter argument is now null and void.
Which argument is that exactly that is null and void.. up to this point you have had a pretty horrible track record of knowing what my arguments were at all.
@freemo I'm too tired to now explain your own posts back to you. I said you were missing the massive money creation by private banks, you argued that they don't create money because it already exists. Now you admit that it does not.
@freemo Good night. Thanks for trying to clarify, even though you still just insult me by claiming I don't understand your arguments, when in fact I'm just disassembling them.
@raucao Good night, and happy to try.
To be clear it is entirely possible for a person to attempt to disassemble and still get it wrong and misunderstand. I am not claiming it is due to any lack of intelligence on your part, only that very clearly you are telling me what you thought i was saying, and it wasn't even remotely close to what I was saying.
I think it should be rather clear I know what my own opinion is better than you do, so when someone tells you that you misinterpreted what they said and you are incorrect about my opinion, that is the last thing you should have any desire to argue about. At that point you should try to better understand the opinion.
@freemo If you want to be understood, then maybe don't write the opposite of what you mean.
> However it isnt entierly accurate to say that they are loaning out money they dont have. They have the money in their vault
@raucao i didnt say I never said that... I did say it, and it is valid. If they have no depositors and their money on the books and in the vault is zero then they can not loan out money (unless they aquire money to loan out by making a loan of their own of course)...
Only once you or someone makes a deposit into an account, where you agree to have your money loaned out, only then can they loan your money to individuals.
So yes, I said that, never said I didnt, and it still holds true.
What I find baffling is how you took what you just quoted and got all the nonsense you claimed you thought I said that in no way is reflected in that statement.
I can only speculate where the disconnect is, but you keep quoting me and those quotes dont remotely resemble your paraphrasing of them in the least.
@freemo > Only once you or someone makes a deposit into an account, where you agree to have your money loaned out, only then can they loan your money to individuals.
So now you're flip-flopping between fractional reserve banking exists and fractional reserve banking does not exist. Which is it?
> So now you're flip-flopping between fractional reserve banking exists and fractional reserve banking does not exist. Which is it?
Holy hell man your paraphrasing skills are 0 today... No I said nothing for the sort. I am describing the fractional reserve system here, and have consistently stated it exists...
Perhaps you dont get how it works..
1) the bank must have the money on hand to loan out, this money can come from the bank borrowing the money from somewhere, having its own assets, or from depositors
2) the bank must keep the required reserve (typically 10% but it varies) on all M1 monies, for example checking accounts. Ergo they can loan out, at most, 90% of your checking account money, which again they had on hand through your deposit.
3) The bank either needs to keep a much lower required minimum, or none at all, on M2 money it has, for example savings deposits. In this case typically near or at 100% can be loaned out.
4) At no point can a bank loan out more money than would cause it to be left with less than the required reserve, again typically about 10% of all M1 money accounts (checking)... ergo it can not loan out money it doesnt have, it can only loan out the money it has, and even then only a fraction of it.
5) This creates a money multiplier effect where the total money supply is higher than the base money, since you now have your account balance (which shows the on demand amount you can withdraw) and someone has their own money that they got via the loan
@raucao I’m not really sure if you understand it or not.. I am only presuming you dont since it might explain why you keep paraphrasing my quotes to mean things unrelated to what the quote says… honestly im mostly just confused why that is happening as I am trying to assume good faith here still.
then explain to me what a reserve requirement of 1% means, please.
It means essentially what I just said in the last post. If a reserve requirement of 1% is set then that means that a bank is required to money, on hand, that is 1% of its M1 deposits, which is most simply described as the checking account deposits (though it is a bit more nuanced than that).
So if a bank starts with no money and a 0 balance sheet and you make a deposit of $100 as a new depositor, the bank is required to keep $1 on hand (in reserve) and is permitted to loan out $99 of the $100 you gave them.
@freemo Exactly, And that's not at all what I just quoted back to you.
> Only once you or someone makes a deposit into an account, where you agree to have your money loaned out, only then can they loan your money to individuals
The rest of that post is even more adamant about me having to deposited all the money first, before they can lend it out.
And that’s not at all what I just quoted back to you.
I don’t understand what you are saying in this sentence. sounds like you are now agreeing with what i have been repeatedly saying for 8 hours now. Are you saying you understand what I have been saying now?
This sentence is just hard to parse, not sure what it says, please rephrase if not.
The rest of that post is even more adamant about me having to deposited all the money first, before they can lend it out.
Yes, you do need to deposit the money first before they can leng it out. That’s what a fractional reserve system means. At 1% they can only lend out 99% of your M1 money. They can not lend out money if you and no one else has deposited any.
Again not sure if your finally understanding what im saying or still struggling with it… Perhaps you are using a different definition of money? When I say money I mean the technical definition, effectivally M0 - M3, whether we count MZM or not is a bit more open to interpretation but not a relevant point here I dont think, nor part of the problem with you understanding what I am trying to say.
@freemo How is that possibly what I'm saying? My language is clear, your language is clear. What you said before was wrong. You just explained why even.
Obviously your language is not clear, if it was I wouldnt be asking you to clarify.
As for if my language is clear, I cant be certain of that either.. It is clear you are getting the opinions I express demonstrably wrong. So that means either you are failing to understand clear language, or I am failing to make my language clear... Either way it is quite bvious by the fact thatI know what my opinions are, and am doing my best to express them, and you are reciting my opinions incorrectly, that there is, quite obviously, a break down in communication.
What I find concerning about your reaction is two fold
1) You assume your conclusion as to what my opinion happens to be holds greater weight than what I know my opinion to be. This is a serious character flaw, obviously I will know my own opinion better than you will, so if i tell you that you are reciting my opinion incorrectly then that should be accepted at face value and a different cause should be considered as to where the disconnect is.
2) You are assuming that I must be able to know what your own opinion is accurately as you must be conveying it in a way that leaves no doubt. Again this seems like a serious character flaw of the same nature. While I will make a best effort to understand your opinion if i quite literally tell you "I do not understand this sentence, please rephrase it" it is not in the least constructive to assume your communication was flawless.
These two add up to a pattern that is extremely troubling when having any hope for a productive conversation. Though I am more than happy to try to work through it so long as I feel you are acting on good faith. For now I suspect they are character flaws, once you may not recognize, and not intentional. But you must make some effort to overcome these two points if you'd like to move forward from here.
@freemo Why do you keep calling them your "opinions"? You stated supposed facts, and I'm doing nothing but addressing them directly. Yet, you still keep telling me that I misinterpret your opinions.
@freemo Thanks. If you wanted this to be productive, you could merely address the actual points. Again, there's nothing ambiguous about what you proposed as fact, and you're still reverting to meta discussion to prevent confronting it. Good night, finally.
@raucao I've addressed the actual points, many times over, and you continually fail to make any effort to understand them..
You immediately assert how you interpret my statements when i address it and dictate it as an absolute rather than making any attempt to see if the ideas were communicated and understood in both directions clearly. Everytime causing a failure to communicate.
I have addressed the underlying points many times, and every time it results in complete failure for you to understand what was being said.. so all i can do now is try to fix the mechanisms of communication in the hopes that, if we do, we can get back to underlying points and have a productive progression from there.
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