The Banks control the money supply, not the Federal Reserve

[MalikX]

Bankers create money out of thin air Why is this my first time learning this


Only 5% of the money in the actual money supply is money created by the Federal Reserve. The other 95% is debt created by banks to loan out to borrowers. So when someone goes to the bank to get a loan for a car or a mortgage, the bank isn't deciding if you're credit worthy enough to give out their money to you as a loan, they're just pressing a bunch of buttons and creating fake digital money out of thin air to give to you, and assuming you pay back the loan, the debt is cancelled/paid in full, and the bank profits off the interest. That's how "money" is created They can create as much money as they want. The banks effectively control the Money Supply. Not the Federal Reserve If we had let the banks fail back in 2008 that would have been like taking 95% of the current money supply out of circulation.

 

[Menelik II]

This is factually incorrect

 

[MalikX]

This is factually incorrect

Explain. They say what I said verbatim here.

 

[Menelik II]

Banks have deposits and lend against those deposits/assets. Some of these assets are from the federal reserve at the federal funds rate.

Banks have a maximum amount they can lend against their assets, which isn't as high as 20:1 in your post. this is called the reserve requirement and is 10 in US I think Let's say bank X keeps a liability:asset ratio of 5:1. Now say the fed gives a bank x 100m they know the bank will lend out a 5x, either trading in the market or straight lending, this is the multiplier and it's a good thing. So the 100m increase from the fed leads to say 500m increase in money supply in the economy.so far so good.

conversely if the fed withdraws that 100m, bank X will have to find 500m from somewhere to maintain their assets:liability ratio.

So really it's the fed that pulls the strings, just because there is a multiplier doesn't mean the banks have the power.

As a side note, this is why bank runs are so dangerous, as for every $1 people withdraw bank X needs to find $5, meanwhile no one in the banking market will lend to them. So they go broke overnight.

 

[newworldafro]

Both of yall are correct.

Federal Reserve controls interest rates.

Banks do fractional reserve banking. Fractional Reserve Banking

 

[Keyser Migraine]

 

[Menelik II]

Both of yall are correct.

Federal Reserve controls interest rates.

Banks do fractional reserve banking. Fractional Reserve Banking

Yes, sorry OP, I didn't mean it was all lies , but it's not the whole truth.
Words like "fake digital money" is misleading.
This vid explains it

I stress this multiplier effect is a good thing, Otherwise it would take a sht load of money printing to stimulate the economy in recessions.

 

[TLR Is Mental Poison]

And on the flip side, money is just as easily destroyed. I feel like the recession in '09 would have been a lot worse without the "cushion" enabled by fractional reserve banking. It's a big shock absorber.

 

[MalikX]

Yes, sorry OP, I didn't mean it was all lies , but it's not the whole truth.
Words like "fake digital money" is misleading.
This vid explains it

I stress this multiplier effect is a good thing, Otherwise it would take a sht load of money printing to stimulate the economy in recessions.

Yea, in some of the documentaries I watched, they said roughly $3 trillion dollars was the result of the Fed printing money, while there was $50 trillion dollars in debt circulating in the economy. You're right about the 9 to 1 ratio. And I'm not sure about that. We rely on the debt now but, it has consequences. Alot of the funny money being generated by banks for example is being used to speculate on real estate. That's how you can have houses in Vancouver and Los Angeles with a median home price of $600,000 even though the median salary is $50,000 in those places.

 

[NoGutsNoGLory]

Our banking system keeps our economics in control. If you look at history books you can see how many economic crises would happen back in the gold standard but now its relatively few.

 

[Menelik II]

Yea, in some of the documentaries I watched, they said roughly $3 trillion dollars was the result of the Fed printing money, while there was $50 trillion dollars in debt circulating in the economy. You're right about the 9 to 1 ratio. And I'm not sure about that. We rely on the debt now but, it has consequences. Alot of the funny money being generated by banks for example is being used to speculate on real estate. That's how you can have houses in Vancouver and Los Angeles with a median home price of $600,000 even though the median salary is $50,000 in those places.

We are a high debt country but also high growth, and the world has a lot of faith in US. Debt is not a problem if you can keep rolling it over . US has effectively been able to borrow whatever it wanted for the past 30 years, and most probably will be the case for a while.
The property prices is more due to interest rates being so low for so long around the world which is something separate.

 

[MalikX]

We are a high debt country but also high growth, and the world has a lot of faith in US. Debt is not a problem if you can keep rolling it over . US has effectively been able to borrow whatever it wanted for the past 30 years, and most probably will be the case for a while.
The property prices is more due to interest rates being so low for so long around the world which is something separate.

The vast majority of the "money" created in our economy is done so via debt. The banks punch numbers into a computer, "money" is created, people take this "money" to go out into the economy and spend. It becomes income for other people. The banks take the interest. Our money is "debt". The vast majority of it. The more debt you create, the higher the likelihood people will default on their debt. And when too many people default, it overwhelms the system. The point is, when there's only $3 trillion dollars printed by the Fed and $50 trillion dollars originating from debt, then yea, the banks are creating the money supply. And again...I'm not sure about that. The banks are pumping $200 billion into the economy every single year and alot of it is being used to speculate on housing.

 

[Menelik II]

The vast majority of the "money" created in our economy is done so via debt. The banks punch numbers into a computer, "money" is created, people take this "money" to go out into the economy and spend. It becomes income for other people. The banks take the interest. Our money is "debt". The vast majority of it. The more debt you create, the higher the likelihood people will default on their debt. And when too many people default, it overwhelms the system. The point is, when there's only $3 trillion dollars printed by the Fed and $50 trillion dollars originating from debt, then yea, the banks are creating the money supply.

This multiplier effect is the same whether it's paper money or electronic, it makes absolutely no difference. Secondly this fractional banking system is the same EVERYWHERE across the world, even less capitalist states like china. Fractional banking is not a bad thing, it is normal. It's similar to you buying a house for 400k but you only earn 80k. You don't have all 400k but as long as the bank doesn't ask for it all today you're fine. You're not screaming "all the 400k is debt" are you?

Your videos and sources are sensationalising something that's quite normal and boring, trying to spin it into a conspiracy .

 

[Scholar]

No offense but the internet is full of so much misleading economic policy info it's crazy. People go on YouTube and feel like they have a PhD in Econ (aka like the end the fed propaganda on YouTube).

 

[Scholar]

Also the fed is mainly determining the money supply through open market operations. They are either buying or selling bonds to increase or decrease the money supply which in turn effects the interest rate /savings/investment.

Also the idea of a run on the banks is prevented by the Feds