# Own vs. owed



## Tyler Durden (15 May 2012)

Sorry, it's late, so forgive me if I can't articulate my question with precision, but I wanted to get this out of my head before I forget it.

In general, do you think it is easier to become wealthy by owning assets, or being owed money?

I was thinking of banks and they seem to make humongus profits, not from owning assets, but from other people owing them money and paying interest on it.


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## Glen48 (16 May 2012)

Banks make most of their money of fees and charges you have no control over, once you have your money it is much harder to hang on to it than making.


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## im sparticus (16 May 2012)

They also owe a little more than they Are owed (reserve requirements) collecting the spread between owe and owed


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## Starcraftmazter (16 May 2012)

Creating money out of thin air and lending it at interest, and re-lending other banks' money at higher interest when you exhaust your capital sure is profitable. This is not something mere mortals are legally able to do unfortunately.

The problem with being owned things is counterparty risk. US banks know this all too well, they all became insolvent and went bankrupt over it.

Following on from that, I would definitely prefer to own assets with no counterparty risk, rather than being owned anything or owning assets with counterparty risk.



im sparticus said:


> They also owe a little more than they Are owed (*reserve requirements*) collecting the spread between owe and owed




Australia doesn't use the fractional reserve system of banking. Even in the US, banks are not really constrained by reserve ratio requirements.


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## ENP (16 May 2012)

I'm beginning to think the only way to get ahead wealth wise is to load up to your eye balls in debt and purchase property. 

I see using your own money to buy shares and quite a slow way to build wealth. Because I'm only controlling the amount of money that I can save. e.g. I save 10k per year and invest in shares. They go up 20% and I make 2k. 

I use my 10k to buy 50k worth of property. It goes up 4% and I make 2k. 

What is more likely to happen, my shares going up 20% every year or property going up 4% a year?

However, the only way I see getting into property is to negative gear! I'm not a big fan of this, topping it up and hoping for the price to go up.

How can we win? I'm assuming Tyler is in his early 20's like myself.


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## numbercruncher (16 May 2012)

ENP said:


> I'm beginning to think the only way to get ahead wealth wise is to load up to your eye balls in debt and purchase property.




Sigh .....


Way way back in the olden days before thou were born (2008) the people of that era were reminded of the consequences of such a pyramid scheme ....


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## mazzatelli (16 May 2012)

ENP said:


> I'm beginning to think the only way to get ahead wealth wise is to load up to your eye balls in debt and purchase property.



 imo the better way to wealth is improve skills in your trade/career/business or marry into wealth: and THEN investing wisely.

Alot of folks in general seem to think an ordinary paid job + investing = automatic wealth


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## im sparticus (16 May 2012)

Starcraftmazter said:


> *Creating money out of thin air *and lending it at interest, and re-lending other banks' money at higher interest when you exhaust your capital sure is profitable. This is not something mere mortals are legally able to do unfortunately.
> 
> 
> 
> ...





fact: you cant lend money you dont have.


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## tech/a (16 May 2012)

ENP said:


> I'm beginning to think the only way to get ahead wealth wise is to load up to your eye balls in debt and purchase property.
> 
> I see using your own money to buy shares and quite a slow way to build wealth. Because I'm only controlling the amount of money that I can save. e.g. I save 10k per year and invest in shares. They go up 20% and I make 2k.
> 
> ...




Your right.
Problem is you have to get your timing right or you will lose the lot.

In my book there are 3 ways to accumulate more wealth than you
Need.Only a few % of people will ever achieve this.

#1 Your own business ( turning over more than $3 mill )
The deli,coffee shop,lawn round won't do it.
#2 Trading ( with enough capital to purchase a house / $ 200 to
$500 k minimum)
Loading up leverage with CFD's won't do it either.
#3 Property with at least 2 IP's.
Bank loans won't do it either.

A handful of cash like a lottery win won't guarantee longterm success either
Many lose the lot.
95% of businesses fail in the first 3 years
95% of traders fail
Property can fall or stay stagnant for years.

There is light at the end of the tunnel
It takes patience.
There are clear times to enter all of the wealth creating vehicles
Given the original posters age they will see many of these times.

You will need to learn how and what to identify and how the place yourself in the position to take advantage of the opportunity when it presents itself.

It's these *OUTLIERS* that will make your investments truly succeed.


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## odds-on (16 May 2012)

ENP said:


> I'm beginning to think the only way to get ahead wealth wise is to load up to your eye balls in debt and purchase property.
> 
> I see using your own money to buy shares and quite a slow way to build wealth. Because I'm only controlling the amount of money that I can save. e.g. I save 10k per year and invest in shares. They go up 20% and I make 2k.
> 
> ...




I recommend a book called Free Capital by Guy Thomas as I found that it put wealth creation into perspective for me. Before the inevitable FA vs TA vs Property investment discussion begins, some of the investors used a combination of approaches over the years. The book has got great reviews from UK investments websites and a some of the millionaires in the book are prolific posters on a UK forum. 

http://guythomas.org.uk/blog/

Motley Fool Au also had an article about it.

http://www.fool.com.au/2012/05/investing/12-insights-for-my-path-to-a-million/

Also recommend the following classic. Read about his early years and his capital allocation decisions when he was 20-35 years old.

http://www.amazon.com/Buffett-The-Making-American-Capitalist/dp/0385484917


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## waimate01 (16 May 2012)

ENP said:


> I'm beginning to think the only way to get ahead wealth wise is to load up to your eye balls in debt and purchase property.




Here's a case study of some guys I have lunch with once a month:

- three of them started their own separate businesses, worked their arses off for ten years, coasted for another five years making really good profits, sold the business for a shedload of money and retired early to lead a life of leisure which includes travelling the world business class several times a year and staying in really nice places.

- two of them always worked for the man, worked diligently, lived well but modestly, didn't get involved in debt beyond PPOR and maybe one IP, ensured income exceeded expenses and invested the excess conservatively and wisely. They both retired and lead a life of leisure travelling the world business class several times a year and staying in really nice places

- a couple ensured their lifestyle always matched their income (ie, equalled), borrowed heavily to invest, are past minimum retirement age and are still saddled in debt, never fly business and don't come to lunch because it's all too depressing

- others are work in progress 

The conclusion is that there's more than one path to meet your destination, but the paths have certain things in common - live within your means and don't over-borrow!!

Countries ditto.


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## burglar (16 May 2012)

tech/a said:


> ... place yourself in the position to take advantage of the opportunity when it presents itself.. ..



Exactly!!
If you want to catch a bus, stand at a bus stop!


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## Starcraftmazter (17 May 2012)

im sparticus said:


> fact: you cant lend money you dont have.




Fact: You don't know how the banking system works. Any banking system.


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## im sparticus (18 May 2012)

Starcraftmazter said:


> Fact: You don't know how the banking system works. Any banking system.





fact: you dont have two cents to your name and your sore as hell about it!

Care to eloborate, here is a hint if they could create money out of thin air and lend it they would profit not only the total interest but the principal aswell. 

Guess they never explained that on youtube


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## Starcraftmazter (18 May 2012)

im sparticus said:


> Care to eloborate, here is a hint if they could create money out of thin air and lend it they would profit not only the total interest but the principal aswell.




When a loan is paid back, the principle is destroyed just as it was created. Seriously, I can't believe you believe the crap you write - banks only lend money from deposits?? Really?

Logically speaking, who the hell has enough money deposited into banks to allow every single sector of the economy to be in so much debt? Come on.



im sparticus said:


> They also owe a little more than they Are owed (reserve requirements) collecting the spread between owe and owed




Maybe you'd like to explain how banks have a net asset position then? Seriously, why even talk about these things if you have no idea.


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## im sparticus (18 May 2012)

Starcraftmazter said:


> When a loan is paid back, the principle is destroyed just as it was created. Seriously, I can't believe you believe the crap you write - banks only lend money from deposits?? Really?
> 
> Logically speaking, who the hell has enough money deposited into banks to allow every single sector of the economy to be in so much debt? Come on.
> 
> ...




Next question how is it destroyed?


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## im sparticus (18 May 2012)

Starcraftmazter said:


> When a loan is paid back, the principle is destroyed just as it was created.




Just wanted to post again for everyone to enjoy your a fun toy to play with scm.


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## im sparticus (18 May 2012)

Starcraftmazter said:


> Creating money out of thin air and lending it at interest, and re-lending other banks' money at higher interest when you exhaust your capital
> 
> 
> s.




and for those of us who were wondering how the capital was being created.


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## Starcraftmazter (20 May 2012)

im sparticus said:


> Next question how is it destroyed?




By a laser beam? What the hell kind of question is that seriously? 

Do you think banks actually put deposits into some sort of a pool of money out of which they lend out? Seriously? FFS.

Go and learn something, then come back and try to not look stupid.
http://video.google.com/videoplay?docid=-2550156453790090544




im sparticus said:


> and for those of us who were wondering how the capital was being created.




Capital given from parent bank
Shareholder investment 
Retained earnings


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## newanimal (21 May 2012)

Starcraftmazter said:


> Go and learn something, then come back and try to not look stupid.
> http://video.google.com/videoplay?docid=-2550156453790090544



There's been a lot of information out there on this subject for some time. This vid by Paul Grignon is one of the best i've seen IMO. It's comprehensive enough yet concise enough not to alienate low-attention spanners. Imagine....a group of powerful elite secretly getting together and making plans... ha ha ha...what a loony idea. 
I dunno, maybe the incredulous deserve what they get.:sheep:


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## im sparticus (21 May 2012)

newanimal said:


> There's been a lot of information out there on this subject for some time. This vid by Paul Grignon is one of the best i've seen IMO. It's comprehensive enough yet concise enough not to alienate low-attention spanners. Imagine....a group of powerful elite secretly getting together and making plans... ha ha ha...what a loony idea.
> I dunno, maybe the incredulous deserve what they get.:sheep:




that movie is the biggest load of bs but i was guessing thats where you were parrotting your information from. the twisting of a simple truth. You need to run the numbers over a real bank and see if what your saying is true bank would making alot more than they do, the math just doesnt add up. the biggest hint ive given you is cost of funding.


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## im sparticus (21 May 2012)

Some more key words to help you find where the truth was twisted "money supply" and "types of money"


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## Starcraftmazter (21 May 2012)

im sparticus said:


> that movie is the biggest load of bs




Anytime you want to actually mount a coherent argument would be fine. Until then, feel free to continue derping and herping.


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## im sparticus (21 May 2012)

Starcraftmazter said:


> Anytime you want to actually mount a coherent argument would be fine. Until then, feel free to continue derping and herping.




While scm sits at home with his few bars of gold that are currently in the red dreaming of the financial systems demise and a return to the gold standard "the one true currency" the rest of us are bussy expanding our worth. hang in there buddy youll show them.....worked out why the grapes are sour yet???


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## Starcraftmazter (21 May 2012)

im sparticus said:


> While scm sits at home with his few bars of gold that are currently in the red dreaming of the financial systems demise and a return to the gold standard "the one true currency" the rest of us are bussy expanding our worth. hang in there buddy youll show them.....worked out why the grapes are sour yet???


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## im sparticus (21 May 2012)

Starcraftmazter said:


>




default theres another key word for you


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## Starcraftmazter (21 May 2012)

im sparticus said:


> default theres another key word for you




A word which has nothing to do with our discussion.


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## im sparticus (21 May 2012)

Starcraftmazter said:


> A word which has nothing to do with our discussion.





come on scm thinking cap on (or in your case aluminium foil hat)


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## Tyler Durden (21 May 2012)

mazzatelli said:


> Alot of folks in general seem to think an ordinary paid job + investing = automatic wealth







It doesn't? This was my plan! I thought I could use passive income from shares to supplement my wages and I'd be smarter than the average bear...but I am wrong?!?!


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## Macquack (21 May 2012)

im sparticus said:


> fact: you cant lend money you dont have.




Cold hard cash represents less than 10% of the total money supply.

Care to explain where the other 90% came from if it was not *created out of thin air*???


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## im sparticus (22 May 2012)

Macquack said:


> Cold hard cash represents less than 10% of the total money supply.
> 
> Care to explain where the other 90% came from if it was not *created out of thin air*???




Try not to confuse circulation with creation for what its worth cash is not the only base currency but this is not my answer to your question. its all there run the numbers creating money out of thin air wont add up. for every credit there must be a debt net result 0. My apologies to the thread starter for the thread drift seems everyone these days learned about money from that video the dr google phenomenom i guess.


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## newanimal (22 May 2012)

im sparticus said:


> Try not to confuse circulation with creation for what its worth cash is not the only base currency but this is not my answer to your question. its all there run the numbers creating money out of thin air wont add up. for every credit there must be a debt net result 0. My apologies to the thread starter for the thread drift seems everyone these days learned about money from that video the dr google phenomenom i guess.




Somebody please correct me if I'm wrong, but here's the FRACTIONAL RESERVE SYSTEM as I understand it reducing it to simple math to illustrate the principle:

youve got ONE banker.

you have TEN customers.

Each customer has ONE dollar.

Therefore there are TEN dollars in circulation to start with.

For EACH dollar a customer deposits in the bank, under the FRACTIONAL RESERVE system, the banker can loan out TEN MORE dollars to other customers. 

Now, when the banker loans these "dollars", it is not in the form of CASH. It's all numbers and ledgers.  So as long as hard cash withdrawals never exceed a certain level,
no one, except the banker, will be the wiser. Now add to this, each loan is to paid back with interest, lets say 10%. So...where's all these other dollars coming from??? Get it??? pure ponzi scam. Banking....biggest game in town:holysheep:


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## Glen48 (22 May 2012)

True and the banksters hope ever customers  doesn't want their money back like Italy, Spain, Greece and France do now at the same time.

Like driving to Perth from Sydney with 1 tank of fuel and watching the fuel gauge.


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## im sparticus (22 May 2012)

No with frb the bank can only loan 90c in the dollar with 10c going in reserve if that 90c gets redeposited the bank can lend 81c and so on if no more deposits are made or funds raised the bank is done lending big difference. you cant lend money you dont have


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## numbercruncher (22 May 2012)

> . In January 2007, the amount of central bank money was $750.5 billion while the amount of commercial bank money (in the M2 supply) was $6.33 trillion. M1 is currency plus demand deposits; M2 is M1 plus time deposits, savings deposits, and some money-market funds; and M3 is M2 plus large time deposits and other forms of money. The M3 data ends in 2006 because the federal reserve ceased reporting it.




http://en.wikipedia.org/wiki/Fractional_reserve_banking#Example_of_deposit_multiplication


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## im sparticus (22 May 2012)

Glen48 said:


> True and the banksters hope ever customers  doesn't want their money back like Italy, Spain, Greece and France do now at the same time.
> 
> Like driving to Perth from Sydney with 1 tank of fuel and watching the fuel gauge.




You make it sound like the money doesnt exist if the banks call in all loans they will have enough to pay all deposits its all accounted for there is no conspiracy 
 whats your solution, Full reserve??


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## Glen48 (22 May 2012)

Answer a question with a question how do you know the bank are well funded if in USA the banks need bailouts and home owners are under water where are the banks assets.
Why do all the Feds in all countries prop up banks at any cost,how can banks be well funded when in Spain and other places  there are thousand s of vacant properties rotting away they have become a liability, the best thing that can happen is the too big to fail banks should. 
Until we have regulators regulating and banks broken up to smaller banks, proper open accounting nothing will change.
Other than the  the price of PM's

The Greek , Spanish banks etc are the first of along list to go down.


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## Tyler Durden (22 May 2012)

im sparticus said:


> No with frb the bank can only loan 90c in the dollar with 10c going in reserve if that 90c gets redeposited the bank can lend 81c and so on if no more deposits are made or funds raised the bank is done lending big difference. you cant lend money you dont have




If you keep adding that up you'll end up with $10.

Hence $1 just produced $10 in circulation.


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## newanimal (23 May 2012)

Tyler Durden said:


> If you keep adding that up you'll end up with $10.
> 
> Hence $1 just produced $10 in circulation.






numbers and ledgers=money ya don't have=thin air
banking=ponzi scam


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## im sparticus (23 May 2012)

Tyler Durden said:


> If you keep adding that up you'll end up with $10.
> 
> Hence $1 just produced $10 in circulation.






The difference is if the bank lent out the ten from 1 then had the ten deposited to them they would then be able to lend out 100 if this was redeposited the 1000 and so on they would have no limit and be lending money they dont have collecting the full interest and principle instead of the spread and would have no cost of funding issues and no counterparty risk on default there is huge difference. i dont see why people have such an issue with the banks having full utility or whatever the fraction is on the money they are paying for the privelage of everyone else does. do you see the differencr now you confusing deposits with reserve and creation with velocity. no one is creating anything. you cant lend money you dont have!


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## robz7777 (23 May 2012)

im sparticus said:


> The difference is if the bank lent out the ten from 1 then had the ten deposited to them they would then be able to lend out 100 if this was redeposited the 1000 and so on they would have no limit and be lending money they dont have collecting the full interest and principle instead of the spread and would have no cost of funding issues and no counterparty risk on default there is huge difference. i dont see why people have such an issue with the banks having full utility or whatever the fraction is on the money they are paying for the privelage of everyone else does. do you see the differencr now you confusing deposits with reserve and creation with velocity. no one is creating anything. you cant lend money you dont have!




The point is the bank can't lend against the 10.. It has already lent against the 1 to create about 9 (1x 0.9x 0.81 etc) but only if depositors (who got the money from the person who borrowed from the bank in the first place) keep banking the reducing value.. If the money gets kept under the mattress at home (rather than going back into the bank) then there is a problem as the banks can't source the funds to make other transactions (lending, paying other depositors who want their money).. 

The trouble with the Greek/Spanish etc etc is that the assets held (to represent the $1 they hold to create additional lending) have hit the wall and aren't worth $1 anymore.. That is why the ECB (I believe) is swapping these toxic assets for government bonds with the banks so that they can continue to function..


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## im sparticus (23 May 2012)

robz7777 said:


> The point is the bank can't lend against the 10.. It has already lent against the 1 to create about 9 (1x 0.9x 0.81 etc) but only if depositors (who got the money from the person who borrowed from the bank in the first place) keep banking the reducing value.. If the money gets kept under the mattress at home (rather than going back into the bank) then there is a problem as the banks can't source the funds to make other transactions (lending, paying other depositors who want their money)..
> 
> The trouble with the Greek/Spanish etc etc is that the assets held (to represent the $1 they hold to create additional lending) have hit the wall and aren't worth $1 anymore.. That is why the ECB (I believe) is swapping these toxic assets for government bonds with the banks so that they can continue to function..




How do you propose they differenciate from the ten once they are in circulation? Money out of thin air doesnt add up.


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## joea (23 May 2012)

im sparticus said:


> Money out of thin air doesnt add up.




Email Wayne Swan! Happy to help solve the problem.

joea


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## Starcraftmazter (25 May 2012)

I am tired of the amount of crap posted here when it comes to banking systems. So I will post some explanations as best I can, and I hope to God I will not make any mistakes in the following;


I'll work through an example *For the US Fractional Reserve Banking System* since that is what most people seem to be talking about, and that is where a lot of fiat money is created. I will be using a classic reserve ratio of 1:9 - although it's actually 1:10 or 10% in the US, however in reality fractional reserve requirement are irrelevant in the modern world, and do not even apply on all bank deposits - which is why most of the world has done away with them. However in the US it does still hold a lot of relevance for banks' convenience - but do not take this to mean they are in any way constrained by it.

Now, assuming a ratio of 1:9 *for every individual* X dollars deposited, the banking system can lend:
(X * 0.9 ) + (X * 0.9) * 0.9 + ((X * 0.9) * 0.9) *  0.9 + ..... to infinity

In other words, this is an infinite series of X*0.9^n. Luckily this is geometric series, whereby we can find it's limit.

The limit can be calculated by L = (X / (1 - 0.9) ) - X. Note the - X is to take out the original deposit.

Long story short, for every $1 of customer money deposited into the banking system, it will create up to $8 out of nowhere, resulting in a total of $9 within the banking system.

However that's only customer deposits - and you would be right to wonder where the hell the $1 comes from if it was not already in the banking system to begin with.

Banks can (and do as part of FRB) deposit money at the central bank. This money makes up some part of their fractional reserve. This money, they can draw upon *in a different way* - borrowing in a 1:9 ratio, that being if a bank has $1000 deposited at a central bank, it can then borrow $9000 from the central bank - at the central's bank special interest rate. This is not money that neither the retail bank has nor the central bank has at the time the retail bank made a request for it - this is money which the central bank now prints out of thin air and lends to the retail bank, which then re-lends it to the customer. 

At that point, the money created out of thin air by the central bank enters the banking system, and can then be redeposited and relent in a 9:1 ratio, so that $9000 will create up to an additional $81,000.

The original $9000 borrowed from the central bank must be eventually repaid with interest, leaving the vast majority of the additional amount of money created within the banking system - up to $81,000 in it's circulation.

Thus, the $9000 borrowed from the central bank is *destroyed just as it was created*, the interest paid to the central bank on that loan is *paid out in part to the US Federal Treasury and in part to the private shareholders of the Fed*, and the up to $81,000 *stays within the banking system, being created out of nothing*.

Hopefully this example conveys both the *complexity* and the *end result* of how FRB works. I will also say as a disclaimer lest I be misunderstood, not all of the money which the bank sets aside as it's fractional reserve is leveraged in this way, and it is very short-term debt which must be paid back quickly - in reality it is re-payed and re-borrowed very quickly as new money is created from it continuously.


That amount of money - up to $81,000 is what increases the monetary supply and what creates inflation. *Again, I cannot fathom how stupid it is to suggest that banks only lend out a portion of deposits. If this was true, there would be no money left in the world a long time ago.* How do you suppose M1 grows?

Not to mention the money supply in every country grows simultaneously, no one country is lending to another - money is created constantly in very large amounts.




As a further added note, according to the Fed's reports, as of the 9th of May, the top 25 US commercial banks have a total of $4,069.7Bn - in other words, over $4Tr borrowed from the Fed. Foreign commercial banks have borrowed around $1Tr, although I am personally unfamiliar with what sort of collateral if any a US bank would need to provide the Fed to borrow money from it. The point is however, as of 9th of May, the Fed has over $4Tr that it created out of nothing and lent to the retail banks. Every minute that money (which will eventually be destroyed) stays in the banking system, it creates new money (which will stay in the banking system).


But the most important thing is that *Unlike the US, Australia does not use the Fractional Reserve Banking System, Australia has no fractional reserve requirements, the amount of loan money created in Australia bares no relation to any reserve requirements (because they don't exist!), The RBA does not print money and lend it to Australian banks as happens in the US as well as other countries (not always necessarily under the FRB system either).*


Does that mean that Australian banks get loan money from deposits, or that they are constrained in any particular way by the amount of deposits they have when it comes to creating new loans?

*NO, there is no direct relation between the amount of deposits an Australian bank has, and how much money it can lend out - and this applies collectively to the entire Australian banking system.*


In fact, if you look at the balance sheet of any Australian bank, although I have not checked each one personally, I can guarantee that not a single one of them will have anywhere near enough deposits to cover their loans on a 1:1 basis as some posters would claim. *Just for the record*, I think if they did have to make all loans from deposits, that would be great - but that's not how it works.


No, lending money has little to do with deposits. Loans must be funded yes, and deposits are one way of funding loans yes - *however* fundamentally speaking, loans can be funded entirely and indefinitely through borrowing.

In the US, in simple terms, all the money banks need which isn't funded by deposits they can get directly from the Fed.

In Australia, banks do not have anywhere near enough deposits to fuel our housing bubble, and as the RBA does not lend them money, they are forced to borrow it from foreign banks, which can borrow money from their central banks whom in turn create it out of nothing.

Neither US nor Australian banks are limited by deposits or anything else regarding how much money they can create as loans.

However both US and Australian banks are limited in terms of how much money they can loan out by capital requirements - which prevent the banks from becoming insolvent by having enough capital to cover what is considered to be a reasonable amount of losses in it's lending portfolio.

Understand that the above are two separate concepts.


By this time you might wonder what that means for Australians and their banks.

Broadly speaking, it means we have borrowed from other countries the money to fund our speculative housing bubble, and must in turn pay that money back with interest. This money and interest are created through the hard work of Australians, through the sweat of our miners, the inventions of our scientists, the ingenuity of our manufacturers and the skills of all other professionals who provide various services. Much of this wealth that we create every year is taken away from us to fund our massive current account deficit instead of staying in Australia to be spend on things like infrastructure, research and development and entrepreneurship.

So there you have it, the money created out of nothing by foreign central banks - that is what funds (about 40% of) our housing bubble, creates a lot of our inflation and robs us of our wealth.


Lastly, this is only some of the many problems with central banking. While it would clearly be more advantageous for Australia if the RBA printed our own money and lent it to our banks at it's own cash rate so that they would not need to borrow from overseas, and taxpayers would not have to be made liable for their borrowings in times of significant crisis - believe me that will not address other problems with central banking and create different problems which we don't have to face due to the fact that RBA doesn't lend to our banks (borrowing infinite money and gambling on derivatives for instance).


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## Starcraftmazter (25 May 2012)

im sparticus said:


> You make it sound like the money doesnt exist if the banks call in all loans they will have enough to pay all deposits its all accounted for there is no conspiracy




If the Australian banks called in all loans, Australia would suffer the biggest and most violent property crash in the history of the world, and they would in minutes be rendered insolvent, and taxpayers would be under the hook for almost half a trillion dollars in debt just to foreign banks - not to mention being liable for all of their own deposits through their future tax obligations (as well as their children's, and their children's children, etc). And that's in the highly optimistic scenario that the world would still want to lend to our federal government - which by now would have hundreds of percent public debt to GDP.


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## im sparticus (25 May 2012)

Starcraftmazter said:


> If the Australian banks called in all loans, Australia would suffer the biggest and most violent property crash in the history of the world, and they would in minutes be rendered insolvent, and taxpayers would be under the hook for almost half a trillion dollars in debt just to foreign banks - not to mention being liable for all of their own deposits through their future tax obligations (as well as their children's, and their children's children, etc). And that's in the highly optimistic scenario that the world would still want to lend to our federal government - which by now would have hundreds of percent public debt to GDP.





all beside the point fact still remains you cant lend money you dont have! Banks are only collecting the difference between what they buy and sell at regardles of what effect this has on the money supply (which your understanding of is flawed), you seem to still be having trouble connecting the dots. if i have full utility of money i borrow why shouldnt the banks?
Understand these simple facts and you will understand why there is noting wrong with the current banking system it all adds up and is here to stay to think we would be better off on the gold standard is just rediculous wont happen.


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## im sparticus (25 May 2012)

Read back the only faulse statements on the banking system have been your own they even contradict your latest statement, ever get the feeling you have something growing on your forehead scm??


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## againsthegrain (25 May 2012)

Banks borrow alot of money against property which is valued at a certain $ if all the loans were called in property would crash and that value on the assets that the banks borrow against would not be attainable


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## im sparticus (25 May 2012)

againsthegrain said:


> Banks borrow alot of money against property which is valued at a certain $ if all the loans were called in property would crash and that value on the assets that the banks borrow against would not be attainable




banks dont borrow against property they lend to think i hadnt considered this and completely miss the point i was making is about as shallow as me picking your post when i know exactly what your getting at so.

all the loans in australia do not equal all the property in australia you might want to check just how many houses out there are morgaged to the hilt though this was not my point. My point was no money was created out of thin air loans have no effect on monetary base. people seem to think an increase in the money supply = increase in monetary base but they are two completely different animals. like trying to compare quantity with velocity. this is where the youtube videos ala money is debt blur the truth to push there agenda.

I really dont know how to make it any clearer.


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## Macquack (25 May 2012)

Im sparticus,
You say banks cant lend out money they do not have.
Address this situation please.
Say the Commonwealth bank is all maxed out on a particular day and according to you can not make a new loan.

I walk in to the bank and ask for a loan to buy a property off  you Im sparticus for $1 million.
The bank ignores your advice not to lend money it does not have and proceeds to write me a bank cheque in favour of you for the $1 million. 
Now if you happen to bank with the Commonwealth bank, you present the cheque and your account is credited with $1 million dollars.

The result is I have a debt (mortgage) of $1 million and pay interest at say 7 %, you have a deposit of $1 million  (say term deposit) and receive interest at say 5 %. The bank has created $1 million dollars out of thin air and makes the spread of approximately 2 %.


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## im sparticus (25 May 2012)

your situation only exists in your head.

how do you lend money you dont have without increasing the monetary base?


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## Macquack (25 May 2012)

im sparticus said:


> here is a hint *if they could create money out of thin air *and lend it they would profit not only the total interest *but the principal aswell*.




That is not correct.

In the above example which you failed to address, the Commonwealth Bank is still liable to pay you the $1 million if you withdraw it from their bank.

For every dollar created out of thin air, an equivalent deposit is created.

Im sparticus, if you prefer we can use the term "credit creation" instead of "creating money out of thin air".


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## im sparticus (25 May 2012)

Macquack said:


> That is not correct.
> 
> In the above example which you failed to address, the Commonwealth Bank is still liable to pay you the $1 million if you withdraw it from their bank.
> 
> ...




the bank can not issue you the credit without having the funds available this is something they simply cannot ignore read what you just wrote they cant create deposits.

in your example they would be netting more than 2% as they would have relent the mil after i deposited it creating money out of thin air doesnt add up lending what you have does. do the math banks are not as profitable as your idea would allow


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## Tyler Durden (25 May 2012)

im sparticus said:


> No with frb the bank can only loan 90c in the dollar with 10c going in reserve if that 90c gets redeposited the bank can lend 81c and so on if no more deposits are made or funds raised the bank is done lending big difference. you cant lend money you dont have






im sparticus said:


> The difference is if the bank lent out the ten from 1 then had the ten deposited to them they would then be able to lend out 100 if this was redeposited the 1000 and so on they would have no limit and be lending money they dont have collecting the full interest and principle instead of the spread and would have no cost of funding issues and no counterparty risk on default there is huge difference.




...


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## Sir Osisofliver (25 May 2012)

Macquack said:


> Im sparticus,
> You say banks cant lend out money they do not have.
> Address this situation please.
> Say the Commonwealth bank is all maxed out on a particular day and according to you can not make a new loan.
> ...




What they just gave you a million with nothing as security?

Guys give a little bit of thought to this... Is money deposited at a bank an asset for the bank or a liability?? It is in fact a liability it's money that the bank must repay to you. 

Banks make their money mostly from fees and interest. Assets for the banks are loans not deposits, because this is what the banks earns interest from. 

Hence my comment above. Banks tend not to make unsecured loans so in your example quack to borrow a million you'd have to stump up some security...which changes the banks ability to lend....because they now have the ability to use your security as their security...minus their capital adequacy requirements.

Make sense?

Sir O


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## im sparticus (25 May 2012)

ok here goes just because the money supply is inflated by 9x during frb does not mean the bank can take x dollars and lend/create 9x against it, it means they can lend 9/10ths of it (whats really unfair is that they have to pay the utility of 10/10ths in interest on it but at a lower rate than they lend ofcourse) never in the process do they create funds or lend money they dont have.


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## Macquack (25 May 2012)

Sir Osisofliver said:


> What they just gave you a million with nothing as security?
> 
> 
> Hence my comment above. Banks tend not to make unsecured loans so in your example quack to borrow a million you'd have to stump up some security...which changes the banks ability to lend....because they now have the ability to use your security as their security...minus their capital adequacy requirements.
> ...




Obviously, the security is the mortgage over the property.


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## Starcraftmazter (26 May 2012)

im sparticus said:


> all beside the point




Besides the point? Convenient to say when you are shown incorrect. You have said not a single accurate thing so far.



im sparticus said:


> fact still remains you cant lend money you dont have!




Semantics - nobody has the money they lend out, it is created through debt and entered into the banking system.




im sparticus said:


> Read back the only faulse statements on the banking system have been your own they even contradict your latest statement, ever get the feeling you have something growing on your forehead scm??




You have learned *nothing*.



im sparticus said:


> how do you lend money you dont have without increasing the monetary base?




Irrelevant concept. It increases the broader money supply, it causes inflation, it results in no productivity - it is unjustified.



im sparticus said:


> ok here goes just because the money supply is inflated by 9x during frb does not mean the bank can take x dollars and lend/create 9x against it, it means they can lend 9/10ths of it (whats really unfair is that they have to pay the utility of 10/10ths in interest on it but at a lower rate than they lend ofcourse) never in the process do they create funds or lend money they dont have.




This is incorrect in many ways, read my big post again. You seem to be incapable of grasping how banking works....*in any country*.


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## im sparticus (26 May 2012)

all your posts have ever taught me and anyone else for that matter is that you lack the ability to count have know idea what your on about with pretty much everything. i feel so sorry for you evertime you post its not even fun anymore.


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## Starcraftmazter (26 May 2012)

im sparticus said:


> all your posts have ever taught me and anyone else for that matter is that you lack the ability to count have know idea what your on about with pretty much everything. i feel so sorry for you evertime you post its not even fun anymore.




Maybe if you learned to write proper English you would be taken more seriously.


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## Glen48 (26 May 2012)

The more worrying thing is bank doing their on creative accounting and setting up their own guidelines,I am not sure how things work here in Oz but over seas the board decided on takeovers and other high risk ventures and then has an off balance sheet to hide the loss or delay it and hope like hell things come good.

When the taxpayer is on the hook to bail them out they have no fears. 
Getting the auditors onside to give a good report or they tell the bank's how to cook the books.
Like RBS taking over AMB Amro with out any due diligence not knowing ABM were up to the hilt in Sub prime loans.
Look at the sub prime mess USA is in over lax rules and SEC not doing their job,how lobbing by banks and making donations to the feds got what the banks wanted.

Here banks have all their security in tanking property and been sucked in like all the other over seas lending institution. 
It will come crashing down sometime soon and by 2013 be fully underway.
 So I would not be worrying about how banks get their money and fighting with the bed presser more how to protect ones self from what's coming.


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