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  1. #1
    Join Date
    Sep 2010
    Posts
    29

    Is it true that banks don't really lend money?

    I've been hearing people say that banks don't really lend money, but create it with the person's social security number or something ...I'm not sure what that's all about, but the claim goes on saying that (assuming this is true then) this would be fraud on their part.. and some how this is supposed to be good news to the borrower..

    Honestly, I don't understand the slightest thing about this stuff.. can someone shed some light on this?

  2. #2
    Join Date
    May 2010
    Posts
    18

    Re: Is it true that banks don't really lend money?

    Researching it. Not sure yet.

  3. #3
    Join Date
    Nov 2007
    Posts
    4,265

    Re: Is it true that banks don't really lend money?

    no, it is not true. the federal reserve (central bank) creates/removes money from the economy buy buying/selling bonds, providing short term loans to banks (or recalling such loans), adjusting the reserve ratio, etc. but the individual banks do not merely create money on their own.

    now, collectively, all those individual banks together actually create some money through reserve ratios. As money gets lended out, it can get deposited back in and get "relended." It's best explained as an example.

    Person A deposits $10,000 in cold hard cash into Bob's Bank. Bob is required to keep 10% of that on hand. So Bob's bank lends out $9,000 to Person B for their business. Well, person B, spends $8,000 of it and keeps $1,000 of it on hand for money they might need...meaning they "deposit" $1,000 in the bank. Well, the bank keeps $100 of it (10%) on hand and loans out $900.

    So, based on real deposits of $10,000 cash, they loaned out $9,900, and kept $1100 cash on hand, which represents $11,000 worth of deposits, which started as $10,000. Also, keep in mind that that $8,000 that is spent will end up in a bank account somewhere...90% of which will be loaned out.

    So, banks do "create" money, but not really all on their own. It's a big wild system. Actual currency (coins and cash) represent a small fraction of the overall money supply.

    Not sure if that helps or not.
    I'm not selling anything, so I don't need links in my signature to for-profit ventures. You really should question the intentions of those here that have them, as they are generally advertising, not informing.

  4. #4
    Join Date
    Sep 2010
    Posts
    29

    Re: Is it true that banks don't really lend money?

    Quote Originally Posted by calvinandhobbes View Post
    no, it is not true. the federal reserve (central bank) creates/removes money from the economy buy buying/selling bonds, providing short term loans to banks (or recalling such loans), adjusting the reserve ratio, etc. but the individual banks do not merely create money on their own.

    now, collectively, all those individual banks together actually create some money through reserve ratios. As money gets lended out, it can get deposited back in and get "relended." It's best explained as an example.

    [[...........]]

    So, banks do "create" money, but not really all on their own. It's a big wild system. Actual currency (coins and cash) represent a small fraction of the overall money supply.

    Not sure if that helps or not.
    Yeah, I guess it's technically the Federal Reserve... I forgot about that...

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