Stephen A. Lawrence wrote:
> Your earlier claim, quoted below, was that an individual
> bank could lend
> out 10 times the amount of that bank's total deposits.
> The above quote
> from Wiki does not support that claim.
OK then, banks acting in concert lend out 10 times as much money as is
deposited in individual banks. What difference does it make? The fact is that
given the current reserve requirement of 10%, the effect is that for every
dollar deposited in a bank, ten dollars can and usually will be lent out by
whatever convoluted mechanism. Quoting again from that section of the Wikipedia
article:
"As the process continues, the banking SYSTEM (emphasis mine) can expand the
change in excess reserves of $90 into a maximum of $1,000 of money
($100+$90+81+$72.90+...=$1,000), e.g.$100/0.10=$1,000."
I don't see any room for equivocation there. If there is, explain it to me.
> In fact they cannot lend out any money which they don't
> have. This is
> an extremely important point, and cannot be overemphasized:
All right, they can lend out money that the Fed or other banks don't have, as
explained above. The Federal Reserve has the ability to lend money to
individual banks at the discount rate based on their required reserve. You
might say that is now money that banks "have" because they borrowed it from the
Fed, but the Fed just creates the credit for that out of thin air. They don't
even have to print notes to do it. I'd call that a magic trick. Again I ask,
what the difference?
> There is
> *no* "magic" associated with banks. They accept
> deposits in order to
> gain access to funds, and, in order to make a profit, they
> lend out
> those funds (and charge interest on the loans), and that
> was just as
> true 150 years ago as it is today.
There is nothing *but* magic associated with banks. You really must read the
Federal Reserve Act of 1913. It's only two pages long, and if doesn't curl
your hair to read it, then you've shaved your head. And yes, banks were
operating the same way 150 years ago, and longer. The Federal Reserve was
created to bring the U.S. closer in line with what is often called the "Bank of
England Model", that is, creating money as debt. Before that, the same model
was followed, more or less, but in a less formal system. At one time J.P.
Morgan himself was, in effect, the Federal Reserve, the Interstate Commerce
Commission, and the Department of Transportation. You might not like him, but
he was fairly effective at doing all those things, if you didn't mind all the
trusts, cartels and monopolies.
But I digress (it's what I do best). The reserve requirement in a lot of
places, European Union, for example is zero. This leaves an awful lot of room
for hanky-panky. The fact of using derivatives based on other debt as
collateral for further debt, packaged sub-prime mortgages for example, has
brought us to our current situation. The amount of money created this way,
which has recently collapsed is something on the order of $63 trillion,
substantially more than the world domestic product. Aren't we lucky?
M.
