If I deposit $1000 into the bank, how much can the bank loan out based on my deposit? How much money can they "CREATE"?
On 6/18/07 you wrote:
If I deposit $1000 into the bank, how much can the bank loan out based on my deposit? How much money can they “CREATE”?
I’m no expert on this, in fact, I’m learning a lot from all of you here, but I believe it was in the Documentary entitled “The Money Masters” where it talked about fractional banking. And, from what I recall, fractional banking allows the banks to “lend out” $10 for every $1 that is deposited.
So, in your example of depositing $1000, the bank would be able to lend $10,000...If that isn’t “Money For Nothing”, then I don’t know what is.
Technically, it may not be considered “CREATING” money, because the banks aren’t able to create money out of thin air....First, an amount must be deposited.
Yes, you could definetly withdraw your $1,000 the next day, but theoretically, the bank could have already “lent out” the $10,000 on your $1,000 deposit.
Keep in mind that there is enough deposited money in the bank to satisfy the excess money lent out which has been permitted under the rules of fractional banking.
Also, keep in mind that the banks these days pay you an interest rate of about 0.2% on your savings account, yet they charge borrowers 8% or more. Quite a hefty profit these banks are making for money they were able to “create” through fractional banking, wouldn’t you say?
I remember the days when savings accounts in banks drew 5% interest, but those days are long gone...At least, 20 years ago....Whatever happened to those days?
The only way the banks could possibly lose out on fractional banking, is if EVERY depositer withdrew all their money at the same time...Then, the banks would not be able to cover their loans and the bottom would fall out and the bank would fail.