Can banks predict (control) the future?

MrChips

Joined Oct 2, 2009
21,902
The money multiplier and velocity of money are two completely separate things.

Money multiplier is the mechanism of how money is created by banks issuing loans.

Velocity of money describes how rapidly money moves in the economy.
Governments like to see money exchanging hands rapidly because they benefit through taxation, provides jobs and can potentially make the workforce more productive. The downside of this is that it promotes wanton consumerism which places demands on natural resources and stresses our ecosystem.

The problem with this is governments and businesses alike are dependent on growth measured as GDP. The way GDP is currently measured is erroneous. Growth is neither sustainable nor desirable.
 

debe

Joined Sep 21, 2010
1,193
No wonder the Australian govt wanted a Goods & Service Tax (GST). They make a lot of money on just the movement of money betwean people.
 

thatoneguy

Joined Feb 19, 2009
6,359
Strantor, if extra money wasn't injected into the US economy, $1 USD today would be worth exactly the same amount as $1USD was worth in 1970.

It can be plainly proven that that is not true.

When I was in college, $10 was a "useful" amount of money, good for enough gas for the week and a 12 pack of beer, or a carton of cigarettes. For food, you'd get half a cart full of stuff, there were many items under $0.50. The DOW wasn't at 10,000 points, either.

Now, the DOW is still near record highs because anytime it is near going below 9,000, the .gov adds money directly to the market to keep the "points" high. This is a tiny percentage of what needs to happen. The DOW is guessed at being nearly double the actual value it should reflect. If the government wanted to increase the value of the stock market, it would have had to give trilions to all the businesses that are realizing the dollar is worth less. Instead, the .gov made the dollar worth even less by putting money directly into the stock market and not infrastructure.

Re-run your hometown bank argument, which I fully agree with, and it works perfectly, right up until somebody forces the bank to loan money to people who cannot possibly repay the loans, and the same .gov will not reimburse a small town bank that runs out of money because they were forced to write bad loans. Those small banks have no option, their "negative cash" is a bigger number than "positive cash", and they realize that even if everybody deposited their money, those who didn't pay off the loans left all the banks broke (see Saving and Loan crisis, current "bank crisis", and housing crash). Those banks had no choice but to sell their bank to a larger bank, usually a regional bank, eventually, those regional banks became national banks, and then Reserve banks, simply by buying bad debt.

We are now back at the problem of the smalltown bank illustrated above, but at the beginning of the last paragraph, except the smalltown bank is now a National Reserve Bank. They've given out loans that cannot possibly be repaid, so there are quadrillions of dollars in "virtual money" floating around. There is nobody to sell the bank to, and since if they report a negative P&L, the DOW will go down, the .gov steps in and simply gives them a few trillion so they show a profit. (See also Chevy and Chrysler). This is in addition to the money the .gov put directly into the stock market.

Now, the banks are "even", but they are still trying to collect all the bad debts the .gov said they had to give out. If ANY of those debts are repaid, "virtual money" turns into "real money", and the value of the dollar goes down.

It happens every few years, just so whoever is president can keep him and his friends in power, they don't want to be known as "the president who was around that started the Worse Depression". The market tried to correct itself in 2006. The .gov was stupid and propped up the car companies, so it was only a "recession" and not a depression. The new .gov has put in 100 times the amount the last .gov did to keep saying we are only in a recession and not a depression.

That shell game can only go on so long, and we will ALL be wishing for the good old days.

This video covers it, clearly

Jump to 2 minutes and 40 seconds to skip the political part, or watch it all, it is biased, but covers where your bank scenario goes wrong, and what happens when the "virtual money" is called in.
 
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debe

Joined Sep 21, 2010
1,193
oh, debe? I thought it was only MrChips and myself in here.
Ive been a regular reader & find it quite interesting. Here recently the Govt handed out heaps of money for people to spend, as a stimulus. But i suspect a fair percentage was recovered through GST & assorted taxes.
 

Thread Starter

strantor

Joined Oct 3, 2010
5,333
The money multiplier and velocity of money are two completely separate things.

Money multiplier is the mechanism of how money is created by banks issuing loans.

Velocity of money describes how rapidly money moves in the economy.
So, we're both right, and talking about something totally different? I'm saying a banana is yellow and he's saying I'm wrong because an orange is orange?
 

loosewire

Joined Apr 25, 2008
1,686
Find a local bank that the president lives in the area of the bank.Branch
banking turned out to be the worst thing for local commuities.Until local
banks are back your locations economy will never recover.It may be to late,
most properties are being sold to oversea's owners.The U.S will become a
rental base for buyer's of other countries. I can name you a lot of agencies
that is perfect for the first time buyer that is perfect for out of country
people. They have no finance history here and are able to take advanage
of first time buyer deals with cities,back by the U.S.... Not many American
citizens can take advantage,to much credit history,can't compete with
clean slates of no history. I have the name of three agencies that the U.S.
has.One agency offers free medicine,it name's the medicines provided.
Will post them later,you are still doubtful about the hill burton act that
gives a lot( L00T) of no history service.
 

Thread Starter

strantor

Joined Oct 3, 2010
5,333
If we had a 100% reserve system, then the interest would have to come from the public purse. Someone has to lose to pay the bank. The problem is we have a 10% fractional reserve system that allows banks to lend out $9 for every $1 they hold on deposit. In this case, the interest comes out of this imaginary pool of money.
If we had a 100% reserve system, how would the banks loan money? would they loan money? Would we borrow from the government?
If the banks were limited to 100% reserve, they could only lend out depositors' money or money that investors ante up to the bank. What they do now is lend money they do not have.
MrChips I still don't get it. Sorry to drag this through the mud, but here goes:
right now let's say we have a 10% fractional reserve limit. That means that if I deposit 10$, the bank can loan out 9$, and through multiple iterations of relending the 10$ turns into (10$ * 1/.10) 100$.
If the fractional reserve limit were 50%, then for my 10$ deposit the bank could lend out 5$ and my deposit turns into (10$ * 1/.5) 20$.
Now, skip forward to 100% reserve. I deposit 10$, and the bank is required to keep 100% of that on deposit. So they can't lend out any of my money. that doesn't jive with what we've discussed. So I'm thinking that means that the bank with 100% reserve can only lend out money from it's own purse. And all the money in it's purse would have to come from interest paid on loans. So, looking past the fact that the first loan could never be issued because the bank starts out with 0$ profit in it's purse, we'll just assume that an investor jumps in and gets the ball rolling. So, since the bank can't pay itself with imaginary money anymore and can only lend from it's own purse, this means that loans would be very costly, like in the range of the payday loan business, in the triple digits. not many loans would be issued because of the high prices. Now to supplement their income, banks would have to charge fees for deposits instead of paying interest on deposits. Not many people would find use for a bank that charges sky high interest and fees on deposits; bank would be almost pointless. is that correct?
 

loosewire

Joined Apr 25, 2008
1,686
What about points and interest on loans and bank shares,bonds they have other
income.Interest on deposits. Fees they charge for handleing trust accounts for
that old money. Safety deposit boxs, bonds c.d.'s. Debit and credit card fees
and the $35.00 late fee's and $35.00 return check fee's... name some more fee's.
Higher rates if you have bad credit,too bad no account.
 
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