We should all agree with this!

[ShackledNation]

I am talking about my scenario, whereby a bank creates loans up to $900 from a single deposit of $100 cash. What law is broken?

The law of mathematics.

So no law was broken. Got it.


Yes. And as I mentioned before, that is totally irrelevant. Try to keep up.


Yes. Clearly so, actually. A bank can create loans of up to $900 from a single $100 cash deposit with a reserve requirement set at %10.


That describes money creation as you think it happens.


They don't have to pay interest on them.

Right, because they're idiots. The cartoons were cute.

Ad hominem.

The reality remains that an initial cash deposit of $100 allows a bank to make $900 in loans. If the bank does so, they will have met the 10% reserve requirement. You are flailing here--you are even starting to disagree with yourself.

So no law was broken. Got it.

It is impossible for a bank with a single deposit of $100 to loan $900. Law has nothing to do with it.

No it isn't. I already explained how. All the bank has to do is issue the loans, and those loans create the deposits.

Clearly so, actually. A bank can create loans of up to $900 from a single $100 cash deposit with a reserve requirement set at %10.

As long as they get additional deposits of $900 or borrow $900 from another bank.
Barring additional deposits or borrowings, they can only lend $90.

Why can they only lend $90? Doing so would put their reserve ratio at above 50%. They can lend until it is at 10%.

That describes money creation as you think it happens.

Why are you giving links that prove I'm right then?

Why do they ignore the additional deposits they must pay interest on?

They don't have to pay interest on them.

Why don't they have to pay interest on the additional deposits?

Banks do not have to pay you interest for having money in a debit or checking account. If they do decide to do so, the amount is so minuscule that it is completely irrelevant to this discussion.

 

[Toddsterpatriot]

Ok, then I am right. You just agreed with me. You can skip from $200 deposits, $200 in reserves, and $0 in loans to $2000 in deposits, $200 in reserves, and $1800 in loans. Thus the $200 deposit allowed the bank to make $1800 in loans, just like that.

Thus the $200 deposit allowed the bank to make $1800 in loans, just like that

Sure, as long as you end up with $2000 in deposits.
Because $2000 in deposits, not $200, allows $1800 in loans.
Because, as I've said since the beginning, banks loan out a portion of deposits and reserve the rest.

Alright then. You have a $200 deposit, creating $200 in cash reserves. The bank then skips to creating $1800 in loans and the corresponding $1800 in demand deposits for the debtors to spend their loans. Money created.

Todd "A $200 deposit allows $180 in loans, because the reserve requirement means loans are always less than deposits"

Shackled "You're wrong, because $2000 in deposits allows $1800 in loans"

 

[ShackledNation]

Thus the $200 deposit allowed the bank to make $1800 in loans, just like that

Sure, as long as you end up with $2000 in deposits.
Because $2000 in deposits, not $200, allows $1800 in loans.
Because, as I've said since the beginning, banks loan out a portion of deposits and reserve the rest.

Alright then. You have a $200 deposit, creating $200 in cash reserves. The bank then skips to creating $1800 in loans and the corresponding $1800 in demand deposits for the debtors to spend their loans. Money created.

Todd "A $200 deposit allows $180 in loans, because the reserve requirement means loans are always less than deposits"

Shackled "You're wrong, because $2000 in deposits allows $1800 in loans"

*sigh* No, in my example, the initial $200 allowed the bank to create both $1800 in loans and $1800 in deposits. Nobody had to deposit $1800 for the loans to be made.

 

[Toddsterpatriot]

So no law was broken. Got it.


Yes. And as I mentioned before, that is totally irrelevant. Try to keep up.


Yes. Clearly so, actually. A bank can create loans of up to $900 from a single $100 cash deposit with a reserve requirement set at %10.


That describes money creation as you think it happens.


They don't have to pay interest on them.


Ad hominem.

The reality remains that an initial cash deposit of $100 allows a bank to make $900 in loans. If the bank does so, they will have met the 10% reserve requirement. You are flailing here--you are even starting to disagree with yourself.

So no law was broken. Got it.

It is impossible for a bank with a single deposit of $100 to loan $900. Law has nothing to do with it.

No it isn't. I already explained how. All the bank has to do is issue the loans, and those loans create the deposits.

Clearly so, actually. A bank can create loans of up to $900 from a single $100 cash deposit with a reserve requirement set at %10.

As long as they get additional deposits of $900 or borrow $900 from another bank.
Barring additional deposits or borrowings, they can only lend $90.

Why can they only lend $90? Doing so would put their reserve ratio at above 50%. They can lend until it is at 10%.

That describes money creation as you think it happens.

Why are you giving links that prove I'm right then?

Why do they ignore the additional deposits they must pay interest on?

They don't have to pay interest on them.

Why don't they have to pay interest on the additional deposits?

Banks do not have to pay you interest for having money in a debit or checking account. If they do decide to do so, the amount is so minuscule that it is completely irrelevant to this discussion.

It is impossible for a bank with a single deposit of $100 to loan $900.

No it isn't. I already explained how. All the bank has to do is issue the loans, and those loans create the deposits.

Yes, a bank with a single deposit of $100 (plus extra deposits of $900) can loan out $900.
Of course those extra deposits change my claim of a single deposit of $100.

A deposit of $100 (and $999,900 more) allows loans of $900,000. So what?

Why can they only lend $90? Doing so would put their reserve ratio at above 50%.

Nope, lending out $90 leaves reserves at $10. Because $100-$90 = $10.

Banks do not have to pay you interest for having money in a debit or checking account.

In the stupid example, the bank was charging 10% interest. It's safe to say the people depositing the proceeds of earlier loans will want to be paid interest.

 

[Toddsterpatriot]

Alright then. You have a $200 deposit, creating $200 in cash reserves. The bank then skips to creating $1800 in loans and the corresponding $1800 in demand deposits for the debtors to spend their loans. Money created.

Todd "A $200 deposit allows $180 in loans, because the reserve requirement means loans are always less than deposits"

Shackled "You're wrong, because $2000 in deposits allows $1800 in loans"

*sigh* No, in my example, the initial $200 allowed the bank to create both $1800 in loans and $1800 in deposits. Nobody had to deposit $1800 for the loans to be made.

After the loans were made, they need $1800 in new deposits or $1800 borrowed from other banks or the Fed.
Without that extra step, the $200 allows only $180 in loans.

 

[dblack]

reign in the banks by cutting off their ability to manipulate the economy via government.

 

[ShackledNation]

So no law was broken. Got it.

It is impossible for a bank with a single deposit of $100 to loan $900. Law has nothing to do with it.

No it isn't. I already explained how. All the bank has to do is issue the loans, and those loans create the deposits.


Why can they only lend $90? Doing so would put their reserve ratio at above 50%. They can lend until it is at 10%.

That describes money creation as you think it happens.

Why are you giving links that prove I'm right then?

Why do they ignore the additional deposits they must pay interest on?

They don't have to pay interest on them.

Why don't they have to pay interest on the additional deposits?

Banks do not have to pay you interest for having money in a debit or checking account. If they do decide to do so, the amount is so minuscule that it is completely irrelevant to this discussion.

It is impossible for a bank with a single deposit of $100 to loan $900.

No it isn't. I already explained how. All the bank has to do is issue the loans, and those loans create the deposits.

Yes, a bank with a single deposit of $100 (plus extra deposits of $900) can loan out $900.
Of course those extra deposits change my claim of a single deposit of $100.

A deposit of $100 (and $999,900 more) allows loans of $900,000. So what?

Why can they only lend $90? Doing so would put their reserve ratio at above 50%.

Nope, lending out $90 leaves reserves at $10. Because $100-$90 = $10.

Banks do not have to pay you interest for having money in a debit or checking account.

In the stupid example, the bank was charging 10% interest. It's safe to say the people depositing the proceeds of earlier loans will want to be paid interest.

After the loans were made, they need $1800 in new deposits or $1800 borrowed from other banks or the Fed.

Without that extra step, the $200 allows only $180 in loans.

Banks don't lend out reserves. That is your mistake.

 

[EdwardBaiamonte]

reign in the banks by cutting off their ability to manipulate the economy via government.

it seems to me it is the govt manipulating the banks far more than the other way around. Fed Fan Fred FHA CRA etc etc plus miles of regulations.

 

[ShackledNation]

reign in the banks by cutting off their ability to manipulate the economy via government.

it seems to me it is the govt manipulating the banks far more than the other way around. Fed Fan Fred FHA CRA etc etc plus miles of regulations.

The Federal Reserve was essentially a creation of the banks. The banks manipulate the economy through what should be illegal expansion of the money supply, and the Fed keeps the system on life-support.

Regulations attempt to slow down the process of this manipulation, but really it is the money supply expansion that should be stopped. Banking regulations are not regulations on the free market, for the banking sector is in no way free market based.

 

[EdwardBaiamonte]

The Federal Reserve was essentially a creation of the banks.

of course thats utter BS. It was created by Congress, virtually every nation on earth has a central bank, and virtually all economists agree that we ought to have them. And, the Govt could uncreate the Fed tomorrow if it wanted.

 

[Toddsterpatriot]

No it isn't. I already explained how. All the bank has to do is issue the loans, and those loans create the deposits.


Why can they only lend $90? Doing so would put their reserve ratio at above 50%. They can lend until it is at 10%.


Banks do not have to pay you interest for having money in a debit or checking account. If they do decide to do so, the amount is so minuscule that it is completely irrelevant to this discussion.

It is impossible for a bank with a single deposit of $100 to loan $900.

No it isn't. I already explained how. All the bank has to do is issue the loans, and those loans create the deposits.

Yes, a bank with a single deposit of $100 (plus extra deposits of $900) can loan out $900.
Of course those extra deposits change my claim of a single deposit of $100.

A deposit of $100 (and $999,900 more) allows loans of $900,000. So what?

Why can they only lend $90? Doing so would put their reserve ratio at above 50%.

Nope, lending out $90 leaves reserves at $10. Because $100-$90 = $10.

Banks do not have to pay you interest for having money in a debit or checking account.

In the stupid example, the bank was charging 10% interest. It's safe to say the people depositing the proceeds of earlier loans will want to be paid interest.

After the loans were made, they need $1800 in new deposits or $1800 borrowed from other banks or the Fed.

Without that extra step, the $200 allows only $180 in loans.

Banks don't lend out reserves. That is your mistake.

If they only have $200 in deposits, they're not going to borrow $180 to lend $180.
Why pay interest on $380 instead of only $200?

 

[Toddsterpatriot]

reign in the banks by cutting off their ability to manipulate the economy via government.

it seems to me it is the govt manipulating the banks far more than the other way around. Fed Fan Fred FHA CRA etc etc plus miles of regulations.

The Federal Reserve was essentially a creation of the banks. The banks manipulate the economy through what should be illegal expansion of the money supply, and the Fed keeps the system on life-support.

Regulations attempt to slow down the process of this manipulation, but really it is the money supply expansion that should be stopped. Banking regulations are not regulations on the free market, for the banking sector is in no way free market based.

The banks manipulate the economy through what should be illegal expansion of the money supply

Why should lending 90% of deposits be illegal?

 

[EdwardBaiamonte]

The banks manipulate the economy through what should be illegal expansion of the money supply

yes but if they expand or contract too much the Fed intervenes to keep inflation around 0.

 

[ShackledNation]

It is impossible for a bank with a single deposit of $100 to loan $900.

No it isn't. I already explained how. All the bank has to do is issue the loans, and those loans create the deposits.

Yes, a bank with a single deposit of $100 (plus extra deposits of $900) can loan out $900.
Of course those extra deposits change my claim of a single deposit of $100.

A deposit of $100 (and $999,900 more) allows loans of $900,000. So what?

Why can they only lend $90? Doing so would put their reserve ratio at above 50%.

Nope, lending out $90 leaves reserves at $10. Because $100-$90 = $10.

Banks do not have to pay you interest for having money in a debit or checking account.

In the stupid example, the bank was charging 10% interest. It's safe to say the people depositing the proceeds of earlier loans will want to be paid interest.

After the loans were made, they need $1800 in new deposits or $1800 borrowed from other banks or the Fed.

Without that extra step, the $200 allows only $180 in loans.

Banks don't lend out reserves. That is your mistake.

If they only have $200 in deposits, they're not going to borrow $180 to lend $180.
Why pay interest on $380 instead of only $200?

Who said anything about borrowing $180? You are really not following at all, because your assumptions about banking are wrong. If the bank has $200, it just creates loans and demand deposits up to $1800. No borrowing from other banks or waiting for deposits required.

 

[ShackledNation]

The banks manipulate the economy through what should be illegal expansion of the money supply

yes but if they expand or contract too much the Fed intervenes to keep inflation around 0.

Any expansion of the money supply via fractional reserve banking is too much. The Fed allows for more than would be possible without it. The Fed has failed to keep inflation around zero. Because of inflation, the dollar has lost nearly all of its value since the inception of the Fed. The only reason prices are not even higher is because production is keeping up with inflation. The effects of inflation are harder to see because that increased production puts downward pressure on prices.

 

[EdwardBaiamonte]

Because of inflation, the dollar has lost nearly all of its value since the inception of the Fed.

well my dollars have a lot of value anyway. I just bought a brand new state of the art automobile so to say they have lost all their value clearly shows a mistaken understanding.

 

[Toddsterpatriot]

Banks don't lend out reserves. That is your mistake.

If they only have $200 in deposits, they're not going to borrow $180 to lend $180.
Why pay interest on $380 instead of only $200?

Who said anything about borrowing $180? You are really not following at all, because your assumptions about banking are wrong. If the bank has $200, it just creates loans and demand deposits up to $1800. No borrowing from other banks or waiting for deposits required.

As though these demand deposits would remain for any period of time.

Shackled Bank has a single deposit of $1000.
He thinks if he calls it reserves he can magically lend out $9000.
Todd comes to borrow $9000 to buy a car.
Shackled opens a demand deposit account for Todd and credits it $9000.
Todd requests a $9000 check, 10 seconds later, made payable to the car dealer.

Shackled thinks he doesn't need to borrow any money from other banks, or the Fed,
because he opened a demand deposit account for me, an account which now has $0.

 

[ShackledNation]

Because of inflation, the dollar has lost nearly all of its value since the inception of the Fed.

well my dollars have a lot of value anyway. I just bought a brand new state of the art automobile so to say they have lost all their value clearly shows a mistaken understanding.

Each individual dollar has lost the vast majority of its value. That you have more total dollars is irrelevant to the point that the value of the dollar has declined.

 

[EdwardBaiamonte]

Each individual dollar has lost the vast majority of its value. That you have more total dollars is irrelevant to the point that the value of the dollar has declined.

our standard of living has increased trememdously over the decades and we buy that increased standard of living with dollars which then must have huge huge value.

 

[ShackledNation]

If they only have $200 in deposits, they're not going to borrow $180 to lend $180.
Why pay interest on $380 instead of only $200?

Who said anything about borrowing $180? You are really not following at all, because your assumptions about banking are wrong. If the bank has $200, it just creates loans and demand deposits up to $1800. No borrowing from other banks or waiting for deposits required.

As though these demand deposits would remain for any period of time.

Shackled Bank has a single deposit of $1000.
He thinks if he calls it reserves he can magically lend out $9000.
Todd comes to borrow $9000 to buy a car.
Shackled opens a demand deposit account for Todd and credits it $9000.
Todd requests a $9000 check, 10 seconds later, made payable to the car dealer.

Shackled thinks he doesn't need to borrow any money from other banks, or the Fed,
because he opened a demand deposit account for me, an account which now has $0.

Why is the demand account $0? When the check is written, the account still reads $9000. It is not until the check is deposited at the bank that the account is deducted to 0. If Todd ripped up the check immediately after the bank wrote it, he would still have the money in his account.

Let us finish the scenario. Todd gives the check to the car dealer as payment. His account still reads $9000. The car dealer then goes to the bank and deposits the check. The car dealers account is credited $9000. Now Todd's account is zero...but so what? The bank balance sheet is still the same.