Let's talk about the fractitional reserve banking system

[dys]

About a year ago, one of these threads was introduced here, and someone (I can't remember who) said "as far as I'm concerned this subject can't ever be discussed enough". I agreed with him/her then and I agree with them now. I'm going to give my understanding of the system and I'd love to here feedback on it as well as the perspective of other members of this forum. BTW I don't consider myself an expert.

A consumer goes to a bank and fills out a credit application. We'll say that it is an application for a credit card, for 5k. The bank approves the loan at, say, 20% interest. The consumer proceeds to cash advance the card for 5k, then the consumer pays off the loan over a year. What just happened?

First of all, I believe that the bank created the 5k out of thin air. Now some people say that the banks have reserve requirements of 10x their deposit base, others 16x, or 20x, and still others say that it's unlimited. Some people concede the reserve requirements, but claim that the bank doesn't necessarily use their reserves to fund loans. I believe that when banks extend credit, it is always created out of thin air. The reason is simple: why risk real money when you don't have to? I think most people on this forum would agree that when banks extend credit, it is money created out of thin air.

I often hear from people that concede that banks create credit out of thin air that the credit extended is not inflationary, only the interest is. They will often say, "when the money is paid back, it dissapears into a black hole from where it came from." I don't agree with this conclusion. I say the credit is inflationary based on the laws of supply and demand. If I take out a 5k cash advance and spend the money, 5k just got added to the system that wasn't there before. The net result is an increase of 5k into the system. First rule of economics: you can't get something for nothing. That 5k is paid for via inflation. However, I don't see how the interest on the loan is inflationary. If the interest is repaid, the money has to come from somewhere...it doesn't simply appear as bank credit loans do. If the interest is repaid, it has to be taken from someone else's pocket. This is one of the ways that the system creates inevitable poverty.

Implications: bank risks nothing and does nothing productive to create the credit. Loan is paid for by the people, via inflation. Bank either a: loses nothing if loan goes unpaid, b: reaps a reward of the loan in the form of interest if loan is repaid, c: reaps the reward of a free asset in the case of collateralized loans that go unpaid and are acquired through what the system calls 'repossession' or 'foreclosure'.
Obviously the loan is fraudulent from the start as the interest charged is predicated on a non existent risk. Furthermore, the bank is engaging in high treason by unlawfully creating money without the authority to do so (much like the federal reserve).

In this world, money is power. Assets are money. Money is money. Bank parlays acquired assets into policical power through bribery, press manipulation, obfuscation of balance sheets, creation of shell companies, favorable legislation, and a million other ways. As bank slowly acquires more and more assets/money/power, bank can effectively hedge their risk in a million different ways including buying enough PMs to insure that even under a system change/reset, they maintain their power.

This is my understanding.

dys

[Joe King]

About a year ago, one of these threads was introduced here, and someone (I can't remember who) said "as far as I'm concerned this subject can't ever be discussed enough". I agreed with him/her then and I agree with them now. I'm going to give my understanding of the system and I'd love to here feedback on it as well as the perspective of other members of this forum. BTW I don't consider myself an expert.

A consumer goes to a bank and fills out a credit application. We'll say that it is an application for a credit card, for 5k. The bank approves the loan at, say, 20% interest. The consumer proceeds to cash advance the card for 5k, then the consumer pays off the loan over a year. What just happened?

What just happened was that the Bank allowed the person seeking the loan to access their future earnings, today.

When enough people do that, it expands the money supply to allow exponentially more economic activity than would otherwise be able to occur without it.

Here's an example I've used.

Ever seen Wimpy in the Popeye cartoon? Why won't the guy let Wimpy pay tomorrow for a hamburger today?
Because he doesn't know if Wimpy is worth it or not. So along comes the banker who the guy knows is good for it as he has a vault full of "money". Surely he can be trusted to pay tomorrow for a hamburger today.

So the banker extends some oh his credit to Wimpy for a price {interest} and Wimpy gets to eat today instead of waiting 'til after he's possibly earned some "money" at some point in the future.
...and because sales are up, the guy selling hamburgers can then spend the newly created private bank credit on more hamburger meat.

Also, now that there is more "money" available in the market place, it will be easier for Wimpy to be able to earn that "money" back so that he may be able to re-pay the banker for having extended him credit yesterday.

Possibly by delivering hamburger meat, because due to people spending private bank credit as "money", they sold a lot more hamburgers than they otherwise would have. So now there's a new job opening at the butcher shop to deliver hamburger meat that wouldn't have otherwise existed.

Now, times that by 300,000,000 people all using the next several decades worth of "future money" today, and we end up with all this stuff you see that's still all owed for.
Everything from the roads you drive on to the houses we sit in to the buildings we work in. {or outside of, as the case may sometiimes be}

So ultimately the loan is just as fictitious or not as your potential future earning ability is, or is not.

The big problem with a system like this is that it doesn't work so good in reverse.
And it goes into reverse when the collective future earning potential falls too much to support the borrowing of the past. Thats when it starts to sputter and die. Which exibits itself in things like lost jobs.

[dys]

What just happened was that the Bank allowed the person seeking the loan to access their future earnings, today.

When enough people do that, it expands the money supply to allow exponentially more economic activity than would otherwise be able to occur without it.

Here's an example I've used.

Ever seen Wimpy in the Popeye cartoon? Why won't the guy let Wimpy pay tomorrow for a hamburger today?
Because he doesn't know if Wimpy is worth it or not. So along comes the banker who the guy knows is good for it as he has a vault full of "money". Surely he can be trusted to pay tomorrow for a hamburger today.

So the banker extends some oh his credit to Wimpy for a price {interest} and Wimpy gets to eat today instead of waiting 'til after he's possibly earned some "money" at some point in the future.
...and because sales are up, the guy selling hamburgers can then spend the newly created private bank credit on more hamburger meat.

Also, now that there is more "money" available in the market place, it will be easier for Wimpy to be able to earn that "money" back so that he may be able to re-pay the banker for having extended him credit yesterday.

Possibly by delivering hamburger meat, because due to people spending private bank credit as "money", they sold a lot more hamburgers than they otherwise would have. So now there's a new job opening at the butcher shop to deliver hamburger meat that wouldn't have otherwise existed.

Now, times that by 300,000,000 people all using the next several decades worth of "future money" today, and we end up with all this stuff you see that's still all owed for.
Everything from the roads you drive on to the houses we sit in to the buildings we work in. {or outside of, as the case may sometiimes be}

So ultimately the loan is just as fictitious or not as your potential future earning ability is, or is not.

The big problem with a system like this is that it doesn't work so good in reverse.
And it goes into reverse when the collective future earning potential falls too much to support the borrowing of the past. Thats when it starts to sputter and die. Which exibits itself in things like lost jobs.

Thank you special agent. Considering that the your employer is beholden to the bankers, I would surmise that you have a very uniqure perspective on the system.

dys

[Joe King]

Thank you special agent. Considering that the your employer is beholden to the bankers, I would surmise that you have a very uniqure perspective on the system.

dys

I'm just tellin' you what it is they're actually doing. ie lending you your own "money" you haven't earned yet.

When you go submit that 5K loan application, they tend to look at your assets, payment history and future earning potential. Why do you think the guy who's held a good job for many years with a good solid company can get a loan for a nice big house, a car, a vacation, his daughters wedding, etc etc etc, but a guy workin' at McDonalds for the past 8 months can't get a loan for a new scooter?


The bad part is that once this treadmill of fractional reserve lending gets going, there's no real good way to stop it without a lot of hurt being inflicted. Which is where I blame those alive at the time for letting this crap get started to begin with. Did they really think permanent growth would actually become a permanent thing?

[letter_factory]

Not just permanent growth, but permanent exponential growth. That's where globalism comes in. Now once sovereign countries are dependent on other countries for trade, and that's where globalist merchants become the master. The west talks about this as if it's something new, but from my readings, china has been doing this for thousands of years.

[palani]

When you figure it out you might want to keep quiet about it and not try to put the same system into practice for your benefit.

The Montana Freemen (it is said) were right on with their approach and some still have not been either charged nor released.

Abandon all hope, yea who enter here.

[dys]

I'm just tellin' you what it is they're actually doing. ie lending you your own "money" you haven't earned yet.

When you go submit that 5K loan application, they tend to look at your assets, payment history and future earning potential. Why do you think the guy who's held a good job for many years with a good solid company can get a loan for a nice big house, a car, a vacation, his daughters wedding, etc etc etc, but a guy workin' at McDonalds for the past 8 months can't get a loan for a new scooter?


The bad part is that once this treadmill of fractional reserve lending gets going, there's no real good way to stop it without a lot of hurt being inflicted. Which is where I blame those alive at the time for letting this crap get started to begin with. Did they really think permanent growth would actually become a permanent thing?

No sir. The bank risks nothing when they lend money save the lendee receive something for nothing.

dys

[Joe King]

No sir. The bank risks nothing when they lend money save the lendee receive something for nothing.

dys

They risk becoming insolvent on their balance sheets if they make bad loans to people whose future earning potential was badly overestimated. Why do you think all those banks have been going belly-up over the past few years? We used to have threads about it every week.

The bank has a certain amount of credit based upon their assets. They extend some of that credit to those they find to have the ability to keep their promise to pay.
As long as they do pay, all is well. As I said, the problem only manifests itself when the limits of the peoples earning potential is out-stripped by the monetary systems demand for constant growth. Which is where we find ourselves today.

ETA: Also, if those bank assets drop in value, the amount of credit extended via fractional reserve lending has to be reduced. Which is why you've seen existing lines of credit cut back and tighter standards for new ones.
ie it weeds out those less likely to be able to pay.

[iOWNme]

I see 2 distinct problems:

1- money created out of thin air, exponentially
2- interest on something that doesnt exist


Couldnt the US Treasury print fiat currency and charge 0% interest?


OOOPS. Sorry, didnt mean to give away the big secret. Not that im a fan of paper (Im not), but its the interest that is never printed into circulation, that KILLS all of us and our country.


The whole deal with credit is this: You can freely increase the money supply WITHOUT AN INCREASE IN GOODS AND SERVICES.

THAT is what causes inflation.

[Joe King]

I see 2 distinct problems:

1- money created out of thin air, exponentially
2- interest on something that doesnt exist


Couldnt the US Treasury print fiat currency and charge 0% interest?


OOOPS. Sorry, didnt mean to give away the big secret. Not that im a fan of paper (Im not), but its the interest that is never printed into circulation, that KILLS all of us and our country.

Yep, they sure could but the they'd blow the economy wide open if you put the throttle in Congress' hand.
ie there'd be "money" for more bridges to nowhere than there are nowheres to get to.

ETA which is why the Founders wanted only gold and silver as money.
ie they know that politicians don't like having to do real work.

ETA2: and the people mostly go along with it because people tend to like the idea of paying for past promises with cheaper/easier "money" than that which they borrowed.