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| icewendigo |
 Posted: Mon Nov 12, 2007 10:59 am Post subject: Banking and Money |
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Forum Senior
Joined: 21 Jun 2006
Posts: 379
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I just watched a video on YT
http://www.youtube.com/watch?v=cy-fD78zyvI
it has 5 parts (you can link to)
near the middle it claims that banks can create money from debt (effectively load money they dont have)
It sounds bogus initially but gets you wondering, but if anyone fairly familiar with banking and monetary practices watch it and comment, to explain why its false or why its true, I'd appreciate it
thanks 
Last edited by icewendigo on Tue Nov 13, 2007 7:04 am; edited 1 time in total |
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| Demen Tolden |
| Posted: Mon Nov 12, 2007 10:19 pm Post subject: |
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Forum Bachelors Degree
Joined: 19 Sep 2007
Posts: 446
Location: St. Paul, Minnesota, USA
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I'd like to hear responses to this as well. I thought the video was very interesting.
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Emotions are contagious, and passions create room for ignorance. Please treat others with kindness so that we can all understand each other and are not waylaid by needless hostility. |
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| jackson33 |
| Posted: Tue Nov 13, 2007 9:52 am Post subject: |
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Forum Professor
Joined: 10 Oct 2006
Posts: 1281
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The Federal Reserve, in sort, buys member banks (those authorized) and larger financial institutions debt contracts. That is a Bank loans money to a group to build a factory, say 100 million, which has the usual payments due and interest. This contract is BOUGHT by the Fed. Actually most folks after buying a house, are making payments indirectly to something other than the Bank they took out the loan from. There is no reload of funds w/o equity.
Our current banking problems, come from the decrease in equity as home values decreased. Some Banks and financial institutions were loaning 200k on a property appraised at 200k to folks who were not qualified, offering lower interest rates (designed to go up with the values) in hopes the values would increase over time. On a National basis that 200k property is now worth 150k. Short of calling in the note, Banks had to go to fixed rates usually 2-4% above the original sub-prime. This left many people paying, unexpectedly, paying hundreds of dollars each month on notes to cover a home worth much less than they paid.
IMO, much of the problem came from other reasons. In the past 5 years, other cost to OWN a home have risen. Property taxes, Insurance and maintenance cost have gone up dramatically. |
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| icewendigo |
| Posted: Tue Nov 13, 2007 10:17 am Post subject: |
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Forum Senior
Joined: 21 Jun 2006
Posts: 379
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| jackson33 wrote: |
The Federal Reserve, in sort, buys member banks (those authorized) and larger financial institutions debt contracts. That is a Bank loans money to a group to build a factory, say 100 million, which has the usual payments due and interest. This contract is BOUGHT by the Fed. Actually most folks after buying a house, are making payments indirectly to something other than the Bank they took out the loan from. There is no reload of funds w/o equity.
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huh? Does that meen you think what the video says is accurate or do you think that its wrong?
From what I understood, the video pointed out that the situation was caused by 'Fractional Reserve Lending'
The user that posted the video explained the way he sees the issue as following:
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1. They profit from the principal (the amount borrowed) indirectly, several times over. But when the principal is repaid, it only renews the banks authority to lend it out again (they don't get to keep it).
2. When banks deposit a certain amount of money to The Federal Reserve Corporation (FED), the FED allows them to create and lend out approximately 9 times that amount (and collect interest on it). But as soon as someone takes out a loan from that bank, it is automatically deducted from the amount the bank can continue to lend out. So, until that loan is repaid, they cannot lend that money again.
3. The trouble is, they never had that money to lend and collect interest on in the first place, so it was created and put into circulation as a debt. Even if the loan is repaid, the newly created money is still circulating and considered a debt obligation (since it was created out of nothing). There's also the problem that the principle will eventually be repaid with additional debt money.
4. Eventually, the money created as debt (and loaned out) finds its way back into the banks, in the form of deposits. But the bank doesn't actually loan out these deposits. Instead, it gains the authority to create additional debt money, and collect further interest on it (restricted to just under the amount of deposits they hold). It's like robbing a store and selling its merchandise to a business partner and then robbing the partner to sell to another, etc.
5. Some may argue that money created as debt is not a serious problem. But the availability of US currency is essentially sitting on loans. And in order to keep the money supply flowing, we have to create more loans which creates more debt. Eventually, the debt becomes so great that we become a liability to the international bankers
6. What happens next depends on how corrupt the governmnent is. The governmnet can either choose to pay back the debt by declaring a national emergency (citing martial law under NSPD 51) and by confiscating our property and labor (think relocation to FEMA labor camps), or they can be really nice and honest by assuming control of the private central bank (The "Corporate" Federal Reserve); it just depends on how many politicians can be bought by international bankers. |
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| jackson33 |
| Posted: Tue Nov 13, 2007 12:56 pm Post subject: |
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Forum Professor
Joined: 10 Oct 2006
Posts: 1281
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| This is not a good answer; Went over what I could from You Tube, including responses. I will stand by what I understand is the process for Bank-Fed transactions or the passing of equities. The Fed does hold 800 Billion of the National Debt, which I can find no reason or link to normal operations. On the 9-1 ratio for loaning, if true, I'll assume its a backed by assets, hedge. IMO the presentation is mixing two or three issues, just what or why, I do not know...or maybe I just don't want to argue another motivated accusation!!! |
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| Scifor Refugee |
| Posted: Tue Nov 13, 2007 1:10 pm Post subject: Re: Banking and Money |
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Forum Professor
Joined: 02 May 2005
Posts: 1171
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| icewendigo wrote: |
near the middle it claims that banks can create money from debt (effectively load money they dont have)
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I haven't actually watched the video, but this claim is correct - sort of. Basically banks "create" money by lending out money that people have deposited. It gets complicted because there are different definitions of “money.” One measure of money is the amount of actual cash in circulation, and banks can’t change that. But another measure of money is “demand deposits”, which are basically money in bank accounts that people can withdraw (like your checking account).
Suppose there is only one bank in a town. Person A deposits $1000 in a checking account. When person B walks in 10 minutes later and wants a $500 loan, the bank takes $500 of the money that A deposited and gives it to B. Person B goes out and spends the money, and merchant C (who owns the store where B spent the money) deposits the money in the bank. The bank now has $1500 dollars in its accounts, so you could say that $500 has been “created” in the form of demand deposits – but the bank still only actually has $1000 of cash in its vault, so there will be problems if A and C both try to withdraw all their money before B pays back his loan, since the bank doesn’t actually have enough cash to cover the dollar value in everyone’s account.
If A and C both want to withdraw their money and the bank doesn’t have enough to cover it, the bank will have to borrow money from the Federal Reserve (which it will have to pay back with interest). The interest rate that the Fed charges banks for loans is the main thing that determines the interest rate that banks charge customers for loans, since the banks will generally always have to charge their customers more in interest than the Fed (otherwise they risk losing money if they have to borrow from the Fed and end up paying more in interest to the Fed than the interest that they make on their loan to the customer.)
There are strict limits on what percentage of a bank’s cash holdings it is allowed to lend
out, so it couldn’t actually lend out all $1000 of A’s deposit.
Of course in the real world there are many banks, so merchant C might not deposit the $500 that came from B’s loan in the same bank, but everyone is generally going to depoit their money in some bank, so it all evens out.
It’s a complicated system, but hopefully that made at least a little sense. |
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| Scifor Refugee |
| Posted: Tue Nov 13, 2007 1:21 pm Post subject: |
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Forum Professor
Joined: 02 May 2005
Posts: 1171
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BTW, this is stupid:
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| 6. What happens next depends on how corrupt the governmnent is. The governmnet can either choose to pay back the debt by declaring a national emergency (citing martial law under NSPD 51) and by confiscating our property and labor (think relocation to FEMA labor camps), or they can be really nice and honest by assuming control of the private central bank (The "Corporate" Federal Reserve); it just depends on how many politicians can be bought by international bankers. |
The Fed is under the control of the federal government. It's not technically a branch of the government, but its board of governors (the people who make the actual decisions) are appointed by the president, and the Chairman (the head guy) has to be approved by the Senate. |
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| icewendigo |
| Posted: Tue Nov 13, 2007 2:38 pm Post subject: |
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Forum Senior
Joined: 21 Jun 2006
Posts: 379
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| Quote: |
| are appointed by the president, and the Chairman (the head guy) has to be approved by the Senate. |
Lets assume, for the sake of an example, that the president and senate arent choosing whoever the existing fed
wants them to choose, and that being immuned from infulence they are independant in their selection.
Ok so if tomorrow the fed decides its interest is now 18%, and that people cry and take to the streets in big rallies, can the President or senate or house fire the entire board and reappoint a new board and new chairman? |
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| jackson33 |
| Posted: Tue Nov 13, 2007 3:24 pm Post subject: |
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Forum Professor
Joined: 10 Oct 2006
Posts: 1281
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Good Question....The Congress can impeach any one or all the Members and remove from office. Very much like *lifetime* appointed judges.
Members are appointed for 14 year terms, second only to those judges.
The Chairman and Vice Chairman are 4 year appointment. C and VC can serve more than one full term, members limited to one. |
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| Scifor Refugee |
| Posted: Wed Nov 14, 2007 3:49 pm Post subject: |
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Forum Professor
Joined: 02 May 2005
Posts: 1171
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| Like Jackson33 said, congress can remove them if they try to do anything really wacky. Usually they are allowed to do what they want without much political influence, which is generally regarded as a good thing. Not that they ever do anything really dramatic anyway. |
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