# Who owns the money?



## MR. (18 April 2009)

Maybe a simple few questions, but have found it hard to get my mind around.  

For every loan a bank grants who was the depositor? 

If near most are against cash investments, who is loaning the cash to the banks?

or does it simply not exist!


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## doctorj (18 April 2009)

A singular dollar circulates many times.

For example, lets say you deposit $1000 with the bank.  Under APRA's laws, the bank has to retain $100 (i've made up the %).  Banks like to make money, so they loan out the remaining $900.  This is spent or saved and eventually ends up in another bank.

This bank puts $90 of the $900 aside and lends $810.  This is also spent or saved and ends up in another bank.

This other bank puts aside $81 and lends $729.  

Etc etc etc.

The amount the banks have to put aside varies from country to country etc etc.  Banks finance themselves through deposits, bond issuance, equity, quasi equity etc to give them the cash they need to make the money-go-round.


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## disarray (18 April 2009)

buy some physical gold.


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## GumbyLearner (18 April 2009)

disarray said:


> buy some physical gold.




Have to agree with disarray there!

If you really want to know who lends...type fractional reserve banking into the wikipedia search engine and go from there... 

Just my


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## Wysiwyg (18 April 2009)

disarray said:


> buy some physical gold.





If an ounce of gold was guaranteed to increase in value yes.

An ounce bought for US$600 30 years ago (1/3 of a life time) could be sold for US$900. That is a 50% increase in cash you would get in return on investment. Considering everything increases in price year on year, then the 50% return on investment would be dramatically reduced in its purchasing power.

Maybe you could add after "buy some physical gold" at per ounce lows.


p.s. ... sitting on a negative value from late 70`s for 20 + years isn`t real smart investing.


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## Tysonboss1 (18 April 2009)

Can somebody explain how the fractional reserve banking system expands the supply of money, I dont get it.


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## nomore4s (18 April 2009)

disarray said:


> buy some physical gold.




Um, how does that answer the op's question? And what is the relevence to the op's question?

MR there is some interesting stuff in this thread on the subject. There are some links in that thread which may also help answer your question.


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## MR. (18 April 2009)

doctorj said:


> A singular dollar circulates many times.
> 
> For example, lets say you deposit $1000 with the bank.  Under APRA's laws, the bank has to retain $100 (i've made up the %).  Banks like to make money, so they loan out the remaining $900.  This is spent or saved and eventually ends up in another bank.
> 
> ...




Thanks Doc, Gumby for your time.  The part I'm still confused with are the above deposits, bond issues or raised equity. This still required someone having the money to loan to the bank.  Following is a link to a video which I have kept in my files which also explains the above in more detail:
http://www.chrismartenson.com/crashcourse/chapter-7-money-creation

The above video explains how that $1000- can turn into $10,000- worth of loans.  But that 10,000 is backed by something like $9000- worth of deposits!
When the accountant (from the video) deposits his $900 into the bank (lets say the same bank) the bank's bottom line now shows that it is owed just $100- The bank is owed after $10,000- of loans just $900-1000 really because it has taken $9000 in deposits. 

Say Gumby is lucky enough to trip over a gold nugget in the bush or he just grew some potatoes, whatever, he has an asset with some value which simply just appeared. Gumby decides to sell it to that accountant for $900- so the accountant does not put the $900- into the bank. Gumby doesn't deposit the cash into the bank either and just sticks it under the bed to avoid any questions.  The bank is owed just that $900-through the services of the accountant to a client. The bank is confident that the client was worth the loan and will be paid back. 

Apart from the Fed printing money recently, money doesn't just appear. The depositors money has to exist. Regardless of how many times that deposit of $1000- is loaned out it still exists as that $1000- still. 

So who owns the money?  Doesn't appear to be the Australian public!

Just noticed some extra posts while I took forever to write the above post. Will read them now. thanks


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## Tysonboss1 (18 April 2009)

MR. said:


> Apart from the Fed printing money recently, money doesn't just appear. The depositors money has to exist. Regardless of how many times that deposit of $1000- is loaned out it still exists as that $1000- still.
> 
> So who owns the money?  Doesn't appear to be the Australian public!




In short the money belongs to the depositor, being being with term deposits and bonds and money sitting in accounts such as ING savings accounts.

But I guess if you trace in back far enough, all money is being rented from the various reserve banks of the world.

In Australias case since we have a negative savings rate, we rely on loaning money from other countries to keep us afloat.


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## maffu (18 April 2009)

In modern times, Collateralized debt obligation's are often the backing of nearly all mortgage loans. The bank does not actually have a depositor for the loan. 

They make the loans bundle thousands together and sell them to rich Chinese, Arabs and Superannuation funds who want a return on investment. This actually takes the loan off the banks balance sheet, they simply earn a fee for giving out the loan and selling the loan to investors. CDO's are in part what caused the housing crisis in the USA. As the banks did not actually take any of the risk, they did not have the money to back up the loans because they were just on selling them, so they did not really care if the loans were paid back as they got their fee only.

Also, as mentioned due to the multiplier effect of money. The amount of money deposited in banks is actually much larger then the amount of notes and coins that exist. That is why confidence in the banking industry is so important. If we lose faith in banks and everyone trys to take their money out at once their will not be enough physical cash.


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## JimBob (18 April 2009)

Zeitgeist:addendum - http://www.zeitgeistmovie.com/ 
talks about fractional money supply, it might help explain a few concepts.  Free download at the above website.


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## Tysonboss1 (18 April 2009)

maffu said:


> In modern times, Collateralized debt obligation's are often the backing of nearly all mortgage loans. The bank does not actually have a depositor for the loan.




isn't the cdo then acting like a depositor,


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## disarray (18 April 2009)

nomore4s said:


> Um, how does that answer the op's question? And what is the relevence to the op's question?




depends on if the op has done any research on his own. there's plenty of threads here and floating around the net about where money comes from, who owns it, governments printing pieces of paper at their leisure, the rise of the banking cartels, and who really wields the power. by virtue of the fact the op has even bothered to ask the question he has doubts about fiat currency, the banking system and the economic basis of our whole society.

gold is a hedge against the system. it doesn't need to be spelt out to enquiring minds.


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## doctorj (18 April 2009)

disarray said:


> gold is a hedge against the system. it doesn't need to be spelt out to enquiring minds.



The best hedge against the system is being able to produce goods yourself of tradeable value (food, energy).

The average person doesn't have any good and doesn't have any use for it.  Do you really think it'll be worth the equivalent of $1000/oz if the **** really hits the fan?

All this is off topic though - there is plenty of other places at ASF to discuss this.


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## disarray (18 April 2009)

doctorj said:


> The best hedge against the system is being able to produce goods yourself of tradeable value (food, energy)




i agree. its a bit hard producing goods living in an apartment in a capital city though, city life is far more service based.



			
				doctorj said:
			
		

> Do you really think it'll be worth the equivalent of $1000/oz if the **** really hits the fan?




if it really hits the fan the $AU will be irrelevant


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## MR. (19 April 2009)

disarray said:


> depends on if the op has done any research on his own. there's plenty of threads here and floating around the net about where money comes from, who owns it, governments printing pieces of paper at their leisure, the rise of the banking cartels, and who really wields the power. by virtue of the fact the op has even bothered to ask the question he has doubts about fiat currency, the banking system and the economic basis of our whole society.




Thanks Maffu, Nomore4's (yet to read through the ASF link), docj, disarray, Jim, Tyson 

Disarray, often do too much research of my own and will admit not always on the right track.  The reason I ask who owns the money is there always has to be someone suppling for the debts.  These debts from my research always has depositors of some sort as Maffu/Tyson pointed out. 

Many continue to laugh at low percentage fixed returns, depositors etc.  I wondered why so many supply money at such low returns if everyone knows property and share returns are better. It's just interesting that all these debts have been supplied by people which must be thinking that their returns will be better that way.

Which made me then arrive at the question Who owns the money? Australia, UK, USA, didn't appear so. 

China, Arabs and perhaps fixed term Super funds everywhere.  OK......  all appear content with lowish returns.


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## Julia (19 April 2009)

MR. said:


> Many continue to laugh at low percentage fixed returns, depositors etc.  I wondered why so many supply money at such low returns if everyone knows property and share returns are better. It's just interesting that all these debts have been supplied by people which must be thinking that their returns will be better that way.



Well, as one depositor who turned to cash when the market was clearly going bad, it was - and still is - a case of protecting capital.  And at beginning of 2008 the returns on cash were much better than they are now.

I'm still cautious about returning to shares, but don't regard cash as a long term option, and am gradually buying.   I'd still rather see my capital not being eroded than worry too much about a short term reduction in cash flow from low interest rates.


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## MACCA350 (19 April 2009)

Julia said:


> a case of protecting capital



That's about the only reason we're keeping the bulk of our cash in the bank. The pathetic interest rates are a slap in the face, now down to about 1/3 of what they were last year.........every interest rate drop feels like they are taking money from our pockets and giving it to those who owe the banks.

cheers


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## Kez180 (20 April 2009)

The APRA regulated amount that the bank is required to maintain is just the amount of cash they are required to keep on hand...

A bank finances loans in one of two ways; firstly, through deposits, 100 people put $1000 in the bank each and the bank lends another person $90,000.

The deposits are a liability on the banks balance sheet and the loans are assets... The important point here is that while the bank only keeps $10,000 handy, it still owes $100,000. If everyone comes at once to take their money out it is called a run on the bank. At the moment in Australia the RBA acts as a 'lender of last resort' and if a bank cannot get money to pay depositors, the RBA will lend it to the bank at the current cash rate... 3% At the moment...

The banks also use 'off balance sheet' financing. This is where they write a bunch of loans, group all of the similar ones together and on sell them. They then use the money from the sale of the mortgages to finance more lending...

Corporate notes are another form of off balance sheet finance, basically the bank just guarantees the payments for a fee...


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## maffu (20 April 2009)

Tysonboss1 said:


> isn't the cdo then acting like a depositor,




It depends what you classify as a depositor. The investor is not actually depositing any money in the bank. They are simply buying the loan portfolio off the bank. The bank is just getting a fee for making the loans and bundling them together, and is just a middle man as such, a wholesale supplier of loans to investors. They were often not actually taking the deposits to fund the loans.


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## maffu (21 April 2009)

MR. said:


> Many continue to laugh at low percentage fixed returns, depositors etc.  I wondered why so many supply money at such low returns if everyone knows property and share returns are better. It's just interesting that all these debts have been supplied by people which must be thinking that their returns will be better that way.
> 
> China, Arabs and perhaps fixed term Super funds everywhere.  OK......  all appear content with lowish returns.



Long post ahead...

I know I will explain this in a terrible way (it is something I only just learnt about from a portfolio manager), but the largest portion of investment return is determined by the risk free rate. Over a full market cycle the cash rate averages around 5-6%. Over a full cycle the share/property will only be about 8-11% rough figures. The cash rate is the driving force behind the majority of investment returns, so its not a low rate to be laughed at.

In terms of saying China, Arabs and fixed income super funds appear content with lowish returns, this is not as simple as it seems. 
Traditionally, these investors all invested massive amounts(trillions) in US treasury bonds. However in the last few years US interest rates were so low at about 1% that these massive investors wanted something better than inflation. 
Trillions of dollars that were not happy with the crappy 1% US Treasury bond return which has an investment rating of AAA, went looking elsewhere, at about the same time the CDO market started growing. As Mortgage Backed Securities were considered "As safe as houses" they were given an investment rating of AAA. 
So these trillions of dollars could invest in AAA rated government bonds returning 1%, or AAA rated mortgage backed securities rated AAA that had much higher returns.
As the amount of liquid capital was so immense, there simply were not enough good housing loans that could be made to fund the demand of investors wanting this safe product with high returns.
The investors wanted more, more, more...
So at every level of the economy, there was a massive incentive to give progressively worse and worse loans. At the end of the day, the investment bankers, banks, mortgage brokers, and home buyers all needed to try and fill this demand by the investors. So homeless drug addicts were given housing loans of hundreds of thousands of $$$. 
So it was the demand of the investors wanting a higher return that kind of helped get us into the sub prime mortgage crisis.


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## MR. (21 April 2009)

Kez180, Maffu, with thanks.

AAA for housing mortgages, it would be only looking for trouble.  Their argument no doubt was that property over the longer term can only go up or remain the same as the population grows. Partly the depositors fault? Perhaps, perhaps not... If the housing mortgages were as safe as gov' bonds with both rating AAA. You don't need the AAA to know they're not. Even had the difference in interest to support this claim.


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## doctorj (21 April 2009)

MR. said:


> You don't need the AAA to know they're not. Even had the difference in interest to support this claim.



I suspect the argument underpinning the high ratings (investment grade) was largely a mathematical one. Mortgages were packaged across different geographic markets (eg Florida and LA) and then often structured in different tranches. The investment grade portions came about because losses were modelled based on a period of relatively low defaults and cheap credit, the idea that the geographic spread reduced risk concentrations (and therefore reducing probable losses) and that the other tranches would take the losses first. Mathematically, the investment grade tranches were almost riskless - unfortunately the modelling proved deficient and the rest is, as they say, history.


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## GumbyLearner (21 April 2009)

disarray said:


> buy some physical gold.




Have to agree with Disarray!

Just be wise with what you buy.


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## ivant (21 April 2009)

If you want to know how the money gets to the banks, it comes from Gov't printing money along with them borrowing from international banks. In Australia most banks actually dont provide that high of a percentage of loans, more act as an intermediate party. they will buy from overseas, and sell here at a higher interest. 

what was said earlier about money circulation has been around for ages. Money in paper form originated when people got fed up with carrying gold around. banks started giving out certificates for gold in their reserves. what happened later is people started trading the certificates and eventually banks started selling certificates, thus creating loans. the amount of money that circulates as a result is much more than we have printed over our lifetimes. this causes inflation to stay down. 

then we see credit crunches


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## Conza88 (21 April 2009)

*Fractional Reserve Banking by Murray N. Rothbard*

Now having read that... consider yourself smarter than most clowns with PHD's in economics. (Not in the Austrian School) 

www.mises.org _(Media Section)_ and _(Literature) _


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## Aussiejeff (22 April 2009)

Geez. It's simple really.

The banks *own* the money.
The banks *make* the money.
The banks *take* the money.
The banks *fake* the money.

The banks *pwn* the economies.
The banks *pwn* the countries.
The banks *pwn* the world.
The banks *pwn* us. 

Can't see what all the fuss is about.


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## Kez180 (22 April 2009)

Conza88 said:


> *Fractional Reserve Banking by Murray N. Rothbard*
> 
> Now having read that... consider yourself smarter than most clowns with PHD's in economics. (Not in the Austrian School)
> 
> www.mises.org _(Media Section)_ and _(Literature) _




The views expressed in that article are one sided and badly researched...

It somewhat reeks of zeitgeist...


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## Conza88 (22 April 2009)

Kez180 said:


> The views expressed in that article are one sided and badly researched...
> 
> It somewhat reeks of zeitgeist...




Zeitgeist is a piece of trash filled with fallacies / half truths. _(Addendum is anyway)_

But you are right, that article was a snippet / summary essentially.

The same writer outlines FRB in several books below. Which can also be heard - free audiobook's.

*What Has Government Done to Our Money?
The Mystery of Banking
The Case Against the Fed
America's Great Depression*



The Federal Reserve as a Cartelization Device

A Critical Analysis of Central Banks and Fractional-Reserve Free Banking

Money, Bank Credit, and Economic Cycles by De Soto


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## MR. (23 April 2009)

Conza88 said:


> Zeitgeist is a piece of trash filled with fallacies / half truths. _(Addendum is anyway)_




Watched it last night. Now I know what people are talking about when it comes to the US blowing up their own towers. Right..... Don't want to talk about the video but for starters the windows blowing out below the collaspe would have been air pressure.  The horizontal floor trusses of the towers keep the verticle beams from buckling. Take out the trusses with extreme heat and with the above weight of the floors and beams buckled and down she came. Sounds more lodgical to me.  



Kez180 said:


> The views expressed in that article are one sided and badly researched...
> 
> It somewhat reeks of zeitgeist...




Though the Last paragraph I have not overlooked completely:


> Let us suppose that total insured bank deposits are $1,600 billion. Technically, in the case of a run on the banks, the Fed could exercise emergency powers and print $1,600 billion in cash to give to the FDIC to pay off the bank depositors. The problem is that, emboldened at this massive bailout, the depositors would promptly redeposit the new $1,600 billion into the banks, increasing the total bank reserves by $1,600 billion, thus permitting an immediate expansion of the money supply by the banks by tenfold, increasing the total stock of bank money by $16 trillion. Runaway inflation and total destruction of the currency would quickly follow.




So what do the governments do?   Secure bank deposits with the governments backing.  Controlling  a run on the banks.  The government appears to have had little choice. They had to follow other countries otherwise there would have been a run on the Australian Banks. If foreign money keeps pulling out of Australia the reserve would have little choice but to introduce more money. No one really wants the reserve to prop up these loans but what else should be done?  Liquidation?

If you had money why do you keep it?  Surely it’s to buy something with eventually.  That’s why  I hold  some money.  That’s why Mr Burns has a million dollar problem! Could it not be the intention of these foreign lenders to want to spend their money at some stage as well?  Like when valuations make them too compelling not to take advantage of the opportunities back home or wherever?  Retrieving their money from debtors potentially only speeds up the potential of buying opportunities?   Now I’m starting to sound like Zeitgeist.
Note in the last sentence of the quote above. 


> Runaway inflation and total destruction of the currency would quickly follow.



Quickly follow!   Only if people wanted to take on more debt!  Interest rates drop to encourage spending.  But Japan couldn’t get it’s people to spend! Even with their lack of space their property  values kept devaluing.

Have now read through the thread “Hypothetical the economy goes bust” https://www.aussiestockforums.com/forums/showthread.php?t=7108
as pointed out by Nomore4’s and has recently got a deserving  “bump”  A stand out poster has been Lakmac and the research he has done over the years shows.  However his later observations I do not understand. 


> Lakmac  21/4/09
> I am getting ready for a period of high, if not hyper inflation. Get out of cash get into hard assets - commodities, real estate, mining companies. China is doing this right now. The days are numbered for the US dollar. The only reason it is holding up is there is no ready alternative for a world currency. Change that and the US dollar becomes about as valuable as a peso.
> 
> We are heading into inflation - not if, when. I give it till the end of the year when we see the signs of inflation hitting.



China has a tonne of US dollars which if they converted will unpeg their currency from the US,  makes China’s currency rise which in turn makes China less competitive in exports.  They buy metals by the likes of Copper because it’s priced in US dollars and they have USD.  (China doesn’t want US dollars anymore) Yes, the days appear numbered for the US dollar.

I have asked Lakmac to comment here on this post as I didn’t want to perhaps spoil a good thread over there. 

Interest rates rise because of the “lack” of money as what appears to be beginning now.  Remember it’s not the interest rates it’s the money supply.  RBA has no control over rising interest rates unless they start printing excessive amounts of the stuff.  Food goes up and basic living items because the loans which produce these products and get them to our tables, have risen. What about the other items? The items we don’t really need!  They try putting them up but no one is buying them.  So they continue to drop in price just to get a sale.

Meanwhile contractors and manufacturers are lowering their quotes and the average persons wage can now drop.  I am still having trouble seeing how inflation comes into the equation without more leverage by the public.  







> Now is the time to get out of cash?



 Is it? I keep thinking it’s not.  Can you see where I’m coming from?  We / I don’t need US dollars, I need AUD even if it falls further in value. I get into real estate as you suggest. The properties both sides are reduced in value because of the “lack” of cash causing foreclosures etc. Your/my new property is now valued as per next door. We just lost money although our property might have been fully owned.  

I‘m saying “Now is too early.........” 
I would like to be convinced that I'm wrong before I am..... ie: this discussion. 

As per Stormin Normin’s post on Cash is King, although typical perhaps of a currency trader 







> “what currency”



.  Who owns the money? as per thread title.  These countries who own the money might just do better than the USD AUD POUND etc.  So could the likes of the Yuan do a lot better than USD and perhaps the AUD?  Won’t stay pegged forever..... exchange back later to AUD.....


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