this post was submitted on 23 Dec 2023
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I think a lot of folks have a fundamental misunderstanding of how loans work. The banks don't get to just magically conjure up as much money as that want. It is backed by actual money/assets and federal regulations require a certain ratio between what the bank has loaned and the amount of money they have readily on hand.
I agree that it's not a perfect system, and I definitely think "businesses" that offer those sketchy payday loan arrangements should be illegal, as they often price gouge the shit out of the interest rates (in fact, I believe many states have outlawed them). But I don't know of a better solution that isn't dependent on a utopian-esque idea.
Wow, I thought they'd raised it back up after COVID "ended." How ridiculous, you'd think that would be one of the first tools they'd use to address inflation outside of just raising interest rates.
You are incorrect. Banks do create money from nothing. And I don't know if it's unlimited but I'm not sure why it needs to be unlimited to feel weird and/or unfair.
That is not true. This is typically how bank loans work: You make an account at a bank and deposit, say, $1000. Before 2020, the Fed would require the bank to retain something like 10% of that $1000 (just using 10% in this example, I haven't looked up what the ratio was pre-2020). So they'd deposit $100 of your cash to keep on hand and could then loan out the other $900 to those seeking a loan.
However, the Fed set that reserve ratio to 0% in 2020, which is idiotic in the long-term and also likely a main contributor several banks collapsed in 2022/2023 as the Fed started raising interest rates (I'm no economic expert by any means, so I could be wrong on the main contributing factor).
I think you're mixing up regular banks with the federal reserve, who definitely can just print money out of thin air.
What if the bank decides to keep all $1.000 and loan out $10.000? While money wasn't printed, phantom money was most definitely conjured out of thin air. And with the magic I don't see how a bank couldn't have, say, bought Disney with the phantom dollars
You're misunderstanding the basics of banking like the other fellow I responded to. I provided a link by the IMF that explains the fundamentals in another reply. I'll provide another one: https://www.investopedia.com/terms/f/fractionalreservebanking.asp
Normal commercial banks cannot just print money, which is exactly what you're implying with "phantom money." The money has to come from somewhere and/or be backed by something. So no, a bank can't just magically turn $1000 into $10,000 without something securing the additional money or the extra money coming from other funds. Only the Fed (or other countries' central banks/governments) can print money on a whim.
I think the most generous interpretation of what they seem to be trying to explain is the "phantom plans" created from loaning loaned money.
A deposits 1k into bank Bank loans B 1k B loans C 500
There's only 1k in circulation, 500 in B's hands and 500 in C's, but there is technically 1500 in total loans.
I could be off base that this is what they're talking about, and I don't necessarily think it's all that relevant to the conversation, just spitballing.
Can you read what you just wrote?
You clearly didn't read. After 20 seconds this page didn't load, but doesn't matter... It's pretty obvious you don't care about facts so I can't imagine you understood or read it yourself
No, I'm thinking of loans. Any bank. I've heard this from multiple reliable sources. Here's a quick one: https://economics.stackexchange.com/questions/26991/is-money-mostly-created-out-of-nothing-by-banks-making-loans
From the very source you linked--which isn't even a good source to begin with since very little of the actual responses there use their cited sources correctly, often quoting shit out of context or misinterpreting the source material:
But again, that's just one user's response. Not a credible source. So here:
https://www.imf.org/external/pubs/ft/fandd/2012/03/basics.htm
Which is a more detailed explanation of what I originally said. Yes, they create money. But it's coming from somewhere and backed by something and not just magically imagined.
In the US, the Fed can just print money, and they have numerous times. But that's because they're legally allowed to. Banks don't have the authority to straight up print new cash without something backing it up (e.g. reserves, assets, securities, transactions, etc.)
You don't understand anything. What bits of this I read didn't support your point at all though