Do taxpayers pay their taxes with bank created dollars or with reserve dollars? - Page 2 - Politics Forum.org | PoFo

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#14961107
Crantag wrote:When banks receive a deposit, they will lend the money. The money is deposited, and the deposit is the basis for re-lending. This is how banks create money, according to conventional theory.


Sure, but how do they lend money they don't have? If I deposit $100, and then the back loans out $1000, where does the $900 come from? Are they creating the money? If so, again, I thought only the fed was allowed to do that.
#14961109
Rancid wrote:Sure, but how do they lend money they don't have? If I deposit $100, and then the back loans out $1000, where does the $900 come from? Are they creating the money? If so, again, I thought only the fed was allowed to do that.

You thought wrong.

This has been explained above. Go reread the thread.

It's called fractional reserve banking.

The banks can run low on cash and need to borrow to maintain liquidity (and if they mismanage it they can take a hit on profits), but your notion that only the Fed is 'allowed' to do that is simply incorrect.
#14961235
Rancid wrote:
Which is it? Are they borrowing or creating?

The answer is both.
When they get a $100 deposit, $10 of it must be retained as reserves.
The bank is allowed to make $90 in loans.
The $100 deposited is not touched. The depositor's account is not reduced by either the reserve requirement or the making of loans.
The bank might loan too much because the Loan Dept. of all banks does NOT check with the Reserve Dept before it makes a loan. But, if the Loan Dept. makes too much loans then the Reserve Dept. can either borrow from another bank on the inter-bank overnight loan system or it can borrow from the Fed. at the so called "discount rate". In both cases it is borrowing just enough reserve dollars to meet the bank's overnight reserve requirement. Then tomorrow is a new day. It will likely get enough deposits to let it pay back the overnight loan.
. . It is a little more complicated because there is a week or 2 delay between when a loan is made and when the bank needs to have reserves to cover it. And, a bank doesn't need deposits to cover the reserve requirement when it makes loans it needs reserves, and there are several ways to get reserves, deposits and loans reserves to borrow reserves from a bank or the Fed. are 2 of the ways.
Last edited by Steve_American on 09 Nov 2018 01:22, edited 1 time in total.
#14961236
Steve_American wrote:The answer is both.
When they get a $100 deposit, $10 of it must be retained as reserves.
The bank is allowed to make $90 in loans.
The $100 deposited is not touched. The depositor's account is not reduced by either the reserve requirement or the making of loans.
The bank might loan too much because the Loan Dept. of all banks does NOT check with the Reserve Dept before it makes a loan. But, if the Loan Dept. makes too much loans then the Reserve Dept. can either borrow from another bank on the inter-bank overnight loan system or it can borrow from the Fed. at the so called "discount rate". In both cases it is borrowing just enough reserve dollars to meet the bank's overnight reserve requirement. Then tomorrow is a new day. It will likely get enough deposits to let it pay back the overnight loan.


How do I get in on this shell game?
#14961246
Rancid wrote:How do I get in on this shell game?

It's not a shell game in terms of the safety for the depositors.
It is a problem [based on my mostly youtube education on economics] for the economy as a whole. Too much private debt creates the risk that the borrowers can't make the payments. When this happens on a mass scale the public must stop spending. This starts a recession. The huge level of private debt makes the recession deeper and longer.
. . . This was the cause of the GFC/2008. It is the cause of the slow recovery in the US and the snail's pace recovery in the EU. Today there is even more private debt.
. . . This the damage that Neo-liberal economics has done to the world's economies. The workers are paid too little [and the rich suck up too much]. Because they are paid too little they need to borrow to spend. The nation needs them to spend because spending *is* the measure of GDP and therefore growth in the GDP. And, the demand to keep the deficit small adds to the problem of slow GDP growth. The only way [you see] for the GDP to grow is for the people and corps. to spend. They need dollars to spend, they get dollars from wages or sales, form Gov. when it deficit spends, or by borrowing them. Private debt must be repaid [or defaulted on (by bankruptcy if private), but Gov. dept can be repaid with dollars the Gov. creates.
this means that it is private debt that causes problems, not Gov. debt.
..Noe-liberalism allows or forces the following aspects ---
. . . . 1] By destroying unions and threatening to move the comp. to Mex., etc. it keeps wages too low. The workers have only gotten inflation size wage increase for 40 years.
. . . . 2] By allowing mergers to form monopolies to be able to charge too much for their products it sucks money form the workers.
. . . . 3] By demanding the deficits be small except when Repuds are in charge it keeps the Gov. from deficit spending to replace the lost spending that the workers can do because their wages have not gone up.
. . . . 4] So, the GDP can only grow because the people are taking on to much private debt. This debt helps the rich get richer from interest payments and is a problem because it causes recessions.
. . . . 5] If the workers were paid more and the Gov. could deficit spend a lot more the GDP would be much bigger.
. . . . 6] If you are a Green then you should want all the increase in the GDP to be form the US making stuff to make the economy much more Green. That is, spending to fight Global Warming.
. . . So, it is Neo-liberal economics that is causing most of the problems in the economies or the World. It recreates the problems that the gold standard was causing before it was abandoned.the world needs MMT economics.
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