Where does a lenders money come from?

What's interesting is that fractional reserve banking is actually a limitation on bank's ability to do this. Without regulation, banks could lend out far more.
 
Mr Jack said:
Work.
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There isn't enough money in circulation to pay the interest, irrespective of how much we work.

Mr Jack said:
What is that you seem to think needs refuting. Banks make money by banking; am I supposed to be shocked about this or something? You still seem confused about the meaning of the word 'scam'.
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If you don't think creating money out of thin air is a scam, then you're either woefully ignorant or in denial.
 
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gillywibble said:
If you don't think creating money out of thin air is a scam, then you're either woefully ignorant or in denial.
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Is this really coming from a guy with absolutely no education in economics by the looks of it? Arrogance much? If you think you're smarter than economists then go on, do scientific research on this matter and prove our whole financial system is just a ponzi scheme or a scam and send it to nobel price committee, change the world for the better.
 
gillywibble said:
If you don't think creating money out of thin air is a scam, then you're either woefully ignorant or in denial.
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You buy a house using hard your hard earned cash for £100k. Someone wishes to purchase this house from you for £110k, you say no thank you, I like this house. The house can now be said to be worth £110k. You have made £10k out of thin air.
Is that a scam?

You now sell your house, and loan the original £10k to Bob. Bob agrees to pay you £10k per year for 12 years. You sell this contact to Alice, for £110k up front. You have now made another £10k out of thin air, doing practically no work.
Is that a scam?


Take scenario two. And say, well if I'm going to be selling the debt on straight away, who do I need the £100k in the first place? I could just go into the red for a short time and all will be well and merry - effectively acting as a middleman between Bob and Alice.
Is that a scam?


Extrapolate a bit, and you have the fractional reserve banking system.
 
Creating money is a necessity for any economy to keep growth and prices stable. All modern economies are founded on fiat money or money which has no intrinsic value. The problem occurs when banks create money and lend it out gratuitously to people with very little chance of paying it back; to then class that as AAA debt and sell it on to gullible buyers. It's people's sudden change of confidence in the value of that money which causes massive problems such as global recessions. By lending money irresponsibly, banks upset the careful balancing of money supply in an economy and created a bubble of wealth which in reality should not have existed.

Anybody who studies economics to a relatively advanced level will know just how important confidence and expectations are in modern economies and creating money 'out of thin air' helps to keep those confidence and expectations at a manageable level. For all the world's problems today, the fact that money is 'created' is very low down that list. The distribution of that money is far more important but just simply printing money can do relatively little to solve that.
 
Nerusy said:
Is this really coming from a guy with absolutely no education in economics by the looks of it? Arrogance much?
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If you don't understand a subject, always attack the person. Works every time.

Judgeneo said:
You buy a house using hard your hard earned cash for £100k. Someone wishes to purchase this house from you for £110k, you say no thank you, I like this house. The house can now be said to be worth £110k. You have made £10k out of thin air.
Is that a scam?
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You are avoiding the fact that in that scenario, I have worked hard to generate the initial £100,000 whereas the bank has not.
 
gillywibble said:
If you don't understand a subject, always attack the person. Works every time.
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This is not an attack, I am voicing my educated guess given your posts, you have not idea how the economy works, at least read a book on the subject before talking about it and hiding behind "you're attacking me" victim nonsense.

We both know you don't have any education in the field and we both know you have not worked in the field then why are you so confident in your own nonsense, have you no shame?
 
Nerusy said:
This is not an attack, I am voicing my educated guess given your posts, you have not idea how the economy works, at least read a book on the subject before talking about it and hiding behind "you're attacking me" victim nonsense.

We both know you don't have any education in the field and we both know you have not worked in the field then why are you so confident in your own nonsense, have you no shame?
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Please refute post #106 :)
 
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Nirk to be perfectly honest Dowie was entirely correct. He just wanted you to substantiate what you said. Then he got a bit pernickity when you refused/evaded.

However your argument was probably more based on sentiment and general knowledge of the area therefore not specific to the exact financial arrangements between Media enterprises and Banks (as they now stand)

Your argument was a general one

Whereas Dowie interpreted it as a specific argument stating X is the case. When of course you don't have the specific data to say X is the case.
 
gillywibble said:
You are avoiding the fact that in that scenario, I have worked hard to generate the initial £100,000 whereas the bank has not.
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Some people work hard like picking up trash from the street, others work smart.
We all know banks are smarter than you, that's not up to a debate. Just because you do not want to take out a loan and create a business out of it doesn't mean bank ought not to do that.
 
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gillywibble said:
I have refuted post #73, whereas you have not refuted post #106.

We appear to have reached a stalemate where the people who maintain it is not a scam can't substantiate their claim :)
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You have no refuted post 73 whereas Judgeneo refuted 106.

We have reached a conclusion that you could not refute 73 whereas 106 was refuted, you just lost ;)

Edit: also if you want to lose again, refute post 135, you won't be able to though because you have not idea how the economy or banking system works. ;)
 
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It's a common myth that banks actually have physical cash to lend. All banks borrow and lend against each other, funded by offering various instruments, guarantees and promises etc. Cash (such as retail accounts) are often invested in short term inter bank borrowing (LIBOR) as they looks for the best deals around but just as much cash come out as it does in, the banks weigh up what can be invested and for how long by looking ahead. A bit like your pay.. what bills are due this month the rest is free cash to invest or spend....

If I borrow £1M k from Bank A at 1.0% then lend that £1m to Bank B for @ 1.1% then I've made 0.1% profit. Whilst this might not seem a lot, when speaking of £B, this is quite profitable. Arbitrage is all about finding cheap money to borrow and lend at a profitable rate that might not obtainable my all institutions. For example, if a banks credit rating is lower then another, they may find competitive rates much harder to find with a bank with a 3xA.

When credit ratings drop, as they have done in the past, banks then turn to "higher risk" trade, because they can't get the guaranteed trade. These are often expensive and have a high risk of defaulting.. When they go sour, there's a whopping great hole and the wheels stop turning.

edit - If everyone demanded their cash at one go, then the bank would be unable to pay out. Northern Rock? The meaning of bankrupt even derives from the term "broken bench" when traders used to physically break other traders benches when they were out of cash. The whole process isn't too dissimilar from bookmaking, measure risk and arbitrage to make a profit..
 
gillywibble said:
Judgeneo didn't refute anything.

What in post #106 is factually incorrect? For the benefit of us simpletons, please explain.
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Judgeneo refuted 106 if you do not understand what he wrote then have some humility and stop trying to argue about a subject out of your grasp of understanding.

Also if you want to lose again, refute post 135, you won't be able to though because you have not idea how the economy or banking system works. ;)
 
Nerusy said:
Judgeneo refuted 106 if you do not understand what he wrote then have some humility and stop trying to argue about a subject out of your grasp of understanding.

Also if you want to lose again, refute post 135, you won't be able to though because you have not idea how the economy or banking system works. ;)
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Thanks for that. Just one final question -

What in post #106 is factually incorrect?
 
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