What do you mean by 'when you transfer this deposits'?

I agree. It's also wrong.

lakin bn0hv

I'm not an economist, so I can't be sure, but as far as I can see the idea of these "ex nihilo loans" must be false. And this is because of the principle of the tragedy of the commons. If banks could make loans out of thin air, that is the equivalent of them printing money themselves. And so there is no reason not to make as many of these ex nihilo loans as possible, because if they do they get free profit, and if they don't other banks will push them out of business by offering this type of loans. So every bank would do this resulting in endless hyper inflation everywhere. So if my logic is reasonable, this concept is impossible. I also would love an answer video MRU! Is there any reality behind this claim, or is it indeed patently false?

I'm far from an economist either, but I'll give it a crack. I think it IS true, basically because we have socialist banking in the form of the Federal Reserve. It may sound insane, but so do all other socialist schemes. Banks get to make loans of money that they don't have because the socialist government keeps printing insane amounts of money out of thin air. They also add staggering amounts of debt every year. The national debt has gone up by crazy amounts every year at least since the mid-'90s. This money is given to the banks. So, banks can essentially loan out money that they don't have and doesn't exist because of the (sadly rightful) anticipation that the money will be there the next year. The government creates it out of thin air in the form of debt and printing. It's not real banking based on a real, limited currency. That is my stab at it, I'm not sure if it's true.

RonaldReaganRocks1 So basically you're saying that it does happen it's just the central banks that do it rather than the private ones? I could see that because they have control over their respective currencies, and it would take care of the tragedy of the commons problem. But when I see this claim it's usually based around it being all banks, which still doesn't make sense.

All banks create money through double-entry accounting. They give a +$100 to you to spend (the money) as well as a -$100 to you to pay back (the loan). It looks the same on their books, except reversed. The amount that they give you is -$100, and the loan is counted as +$100. By making a loan they are temporarily creating money that is destroyed when the loan is repaid. They make the interest as profit. The misconception is that they are loaning free money. The money isn't free for the bank because the loan also includes a negative entry in their books that must be paid. Theoretically, they could loan out an infinite amount of money. But, it doesn't work that way for two reasons. First, their is a fractional reserve limit. This says that, if you have $100 in "reserves", you can "create" $1000 in loans for a fractional reserve limit of 10%. Second, a bank must manage the risk that a loan isn't paid. If too many loans aren't paid, a bank could go into the red. In this example, a bank owes $1000 because it loaned that much out. But, it now has $1100 of reserves. But, $1000 of those reserves are the loan which will be paid off over time. It is an asset, like a bond. If the loan is defaulted on, those reserves don't exist anymore. In that case, the bank still owes the $1000 that were loaned while only having $100 in reserves. I'm simplifying this by neglecting interest and saying that a payment was never made on the loan, but I hope that you get the idea.

You promise not to take the money out for certain period.

What do you think limits this creating of new money? It has the amount of money in circulation from the fed (base money supply). Only banks that get a lot of depositors can then create this money out of thin air but if they had no deposits they can create NO money lol. Otherwise we would have immediate hyper inflation and interest rates of 0% due to an infinite money supply by every bank making endless amounts of money. Research fractional reserve

@@kingal89 Sorry, buddy, but you're incorrect. Dont read up on all the misinformation on fractional reserve banking... I recommend the very good paper from the Bank of England or a paper from McKinsey (titled: *Repeat after me: Banks Cannot And Do Not "Lend Out" Reserves* ). Learn the basics of accounting and balance sheets and you'll understand that the loanable funds theory is complete bogus. Yes, there are limitations to commercial banks' credit-provision, but they have nothing to do with some magical funds limits rather than with profitability at the operative level. The causality of money creation is opposite to the money multiplier fairy tale. Banks give credit beforehand according to solvency of the borrower and the bank's business interests and then afterwards they refinance if necessary. The minimum requirements are checked in period intervals in between banks are not constantly monitored. That alone reverses causality, because Central banks dont set the money base, they specify interest rates according to which banks can refinance... And there are other ways to get reserves, e.g. selling assets to the central bank, or using inter-bank-lending. If the Fed or any other central bank for that matter ever said "no" to a commercial bank asking for reserves, then maybe at least the central bank would act as a limiting authority. But that never happens. It would remove a lot of flexibility in credit processes. If banks had to get reserves first, before they give credit to borrowers, that would complicate things quite a lot... But even if that was the reality on the ground (as opposed to ivory tower text book fairy tales), the loanable funds theory is in direct violation of basic accounting principles. A bank is not a fiduciary taking care of their customer's money... That would be the case in a souvereign / positive money system, but not with the current general accounting principles. Banks simply cannot lend out any reserves, that's logically incompatible with how balance sheets work. And that's irrespective of whether or not a central bank could theoretically limit M1 by denying any further business with commercial banks or setting interest rates so high that it would not be profitable for commercial banks to borrow from the CB. (which might not be in their interest to stifle the economy) And on top of that... Borrowing from the CB is not the only way to increase the money base... Banks can sell assets to the CB which then credits new reserves in the bank's deposit. And there is no limit on financial assets to be created, since they are merely claims on means of payment (or claims on claims, aka derivatives). Private institutions could create a lot of toxic shit and then the CB or Fed buys these assets off of them and thereby increases the money base. In theory, the CB could say No and strangle the economy... But that never happens, they play ball... Sorry, buddy, but you're incorrect.

@@kingal89 the reserves on the banking system will not change. he is right, banks never loan out their reserves, they can only transfer it to other banks

@@parityviolation968 do CB buy bonds from non-bank institution using money or "credit"? just out of curiosity

@@parityviolation968 The private investment comercial or any other bank can not create new money( only fed can ) fractional reserve system does not create new money, when banks lend money the amount of base money or real money stays the same, banks are not more special than other types of businesses to be allowed to create new money.

Yeah, you will most likely end up paying for keeping money in the bank.

obviously it takes time. more over u need quality content, good editing skills...etc

The banks didn't lose anything, in fact they made a lot of money; so yeah, what they did was responsible. Don't blame the player, blame the rules.

wow dude... "The banks didn't lose anything, in fact they made a lot of money; so yeah, what they did was responsible." ... thats like saying "they screw you... but is ok" peter schiff for all of you hahaha... try harder dude.

hahaha

The first video in this course section actually goes into the failure of financial intermediaries and the part they played in the Great Recession. -Meg Video link: kzfaq.info/get/bejne/gpN3otirtselnqM.html

lll

Indeed

The United States became the powerhouse that it is because it produced and exported much of the non-war goods during the world wars and was paid in gold. At one point we had most of the gold in circulation in our vaults. It all fell apart when we started printing excess money at the expense of other countries who had currencies tied to ours. It was wrong and basically fraudulent. Most people have no idea how worthless every single currency is in circulation around the world. They are all tied to absolutely nothing. If you want to save up for the future this is why it is so important to invest in assets. Things with real "value". Never save your money in cash because you are holding onto something that is worthless as soon as the bigger fool theory no longer works (possibly during next global depression).

@@kingal89 You're wrong bro. Sorry, but you just are. Look up endogenous money theory, look up the famous 2014 bank of England quarterly bulletin and its equivalents from the german bundesbank, Norwegian bank CB, etc. Banks grant as many loans as they want, unconstrained. They look for reserves or such afterwards to satisfy their needs or interbanking transactions. The CB doesn't control the money supply, it only controls, in normal times, the short rate.

@@SomeOne1121 Just to clarify you are saying US banks can issue unlimited loans with no restraints and have no capital requirements or regulations that control how much they can leverage? If that were true the local startup bank would raise 1M and loan as much money as JP Morgan or Wells Fargo (in paper funds)....that clearly doesn't happen. Banks earn most of their money off of interest. They have incentive to loan "unlimited" money. Clearly banks don't loan unlimited money.

@@kingal89 Good thing you want to clarify. Not, I didn't say any of that. I said what I said. Look it up and learn for yourself, I'm not interested in what is clearly just gonna be another internet argument where neither side has even a shred of hope of convincing the other. Read up on the material and the facts from those highly reputable sources, and take it from there as you learn more, or don't. Up to you.

@@SomeOne1121 I'm not one of those internet warriors don't worry. In your comment I read that banks could issue as many loans as they want upfront and that is what i disagreed with since they clearly can't . Maybe you didn't mean to say that or maybe I misinterpreted what you did say. Not trying to argue and I didn't write the book on banking so I will check out what you stated in your comment and see if I learn anything new. Have a good one.