5 ms·

> If Bob eventually pays back and the bank doesn't make any further loans, the bank will have 1$ (my dollar) and a couple of cents of interest. This is wrong.

> If Bob eventually pays back and the bank doesn't make any further loans, the bank will have 1$ (my dollar) and a couple of cents of interest. This is wrong. The bank will have $1.90 + interest. You have to pay back your entire loan. Yes, bob might default, but averaged out, the risk calculations set the interest rate high enough to cover that profitably. The fractional reserve part of the banking system is a temporary choice that happens continuously. But if stopped, the bank would eventually have all of its cash because it has all of its reserves covered in debt. > If I give Tether a dollar Tether has another dollar. I get a Tether token which I can exchange on the open market for whatever the market price is. It supposedly is possible (though inconvenient) to get Tether itself to exchange their tokens for actual dollars (of which they hold only 70%) but (just like a bank) Tether relies on that not happening "at scale". The difference is tether has no title to the missing 30%, and probably even more of it if we are going to be honest. The likelihood of repayment and the fullness of reserves are two separate concept. And banks win on both counts.

gridlockd 7y ago
> This is wrong. The bank will have $1.90 + interest. Dude, check your damn math! The bank owes me a dollar. At the time of the loan, it has 10 cents and Bob has 90 cents plus an obligation to pay it back with interest. At the end of the loan, the bank has the 90 cents back plus some amount of interest nowhere near enough to make the total add up to $1.90 (unless Bob takes up a ridiculously high APR and term just to loan a dollar). > But if stopped, the bank would eventually have all of its cash because it has all of its reserves covered in debt. This ignores that Bob has deposited his money at another bank which has used it as a reserve to make even more loans. The system can't stop, it would collapse.
- b_tterc_p 7y ago
  > Dude, check your damn math! The bank owes me a dollar. At the time of the loan, it has 10 cents and Bob has 90 cents plus an obligation to pay it back with interest. At the end of the loan, the bank has the 90 cents back plus some amount of interest nowhere near enough to make the total add up to $1.90 (that would be a ridiculously high APR). Assume that “the bank” in question represents all banks. And so depositing in any bank counts as depositing in “the bank” because this is illustrative. You give a dollar. The bank loans out 90 cents to bob. Bob buys something (I skipped over this) from Joe. Joe puts 90 cents in the bank. Bob pays back 90 cents he earned using the purchase from Joe. The bank now has $1.90. You’re right that the system would collapse if it stopped. But so would, say, the entirety of the national economy stop if we decided to just stop making loans. We like loans because loans enable growth. So you can, idk, buy better GPUs to mine poopcoins
  - gridlockd 7y ago
    > Assume that “the bank” in question represents all banks. "The bank" can't simultaneously be "all banks". Sure, if we consider "all banks" then $1 paid into the system can "magically" turn into $1.90 (and far more) without even considering interest. That's my original point! Money is being created by fractional reserve banking. https://en.wikipedia.org/wiki/Money_multiplier https://en.wikipedia.org/wiki/Money_multiplier
    - b_tterc_p 7y ago
      It doesn’t matter which bank the loan is deposited into. That doesn’t affect what’s happening here. I’m saying one bank because it’s easier to understand. If you really want to be pedantic, sure, maybe bank 1 has $1 + interest and bank 2 has $0.90. That’s also possible But it’s important to get that money is not blindly created. It’s done because value is created at a faster rate than physical dollars. You can view banks as a service that invests your dollars. You give them money to loan out and receive some of the interest in compensation. You yourself can create “new money” by making a loan yourself. The new money is just the result of value creation.
      - gridlockd 7y ago
        > It’s done because value is created at a faster rate than physical dollars. [citation desperately needed] I think you're just letting your imagination run wild on how things work and why that makes sense. > You yourself can create “new money” by making a loan yourself. No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can circulate and that can itself be the basis for new money creation. > The new money is just the result of value creation. The new money is the result of fractional reserve lending, period. Whether "value" is created along the way is absolutely not a given.
        b_tterc_p 7y ago
        > I think you're just letting your imagination run wild on how things work and why that makes sense. If value were not being created fast enough, then people wouldn’t be able to payoff the loans. The loans are made either to enable value creation (business loans) or to fund a purchase and the loan taker agrees to funnel their value creation (salary) back into it. > No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can circulate and that can itself be the basis for new money creation. Obviously I meant to someone else. Though perhaps this one is too hand wavey to be useful

gridlockd 7y ago

> This is wrong. The bank will have $1.90 + interest. Dude, check your damn math! The bank owes me a dollar. At the time of the loan, it has 10 cents and Bob has 90 cents plus an obligation to pay it back with interest. At the end of the loan, the bank has the 90 cents back plus some amount of interest nowhere near enough to make the total add up to $1.90 (unless Bob takes up a ridiculously high APR and term just to loan a dollar). > But if stopped, the bank would eventually have all of its cash because it has all of its reserves covered in debt. This ignores that Bob has deposited his money at another bank which has used it as a reserve to make even more loans. The system can't stop, it would collapse.

b_tterc_p 7y ago
> Dude, check your damn math! The bank owes me a dollar. At the time of the loan, it has 10 cents and Bob has 90 cents plus an obligation to pay it back with interest. At the end of the loan, the bank has the 90 cents back plus some amount of interest nowhere near enough to make the total add up to $1.90 (that would be a ridiculously high APR). Assume that “the bank” in question represents all banks. And so depositing in any bank counts as depositing in “the bank” because this is illustrative. You give a dollar. The bank loans out 90 cents to bob. Bob buys something (I skipped over this) from Joe. Joe puts 90 cents in the bank. Bob pays back 90 cents he earned using the purchase from Joe. The bank now has $1.90. You’re right that the system would collapse if it stopped. But so would, say, the entirety of the national economy stop if we decided to just stop making loans. We like loans because loans enable growth. So you can, idk, buy better GPUs to mine poopcoins
- gridlockd 7y ago
  > Assume that “the bank” in question represents all banks. "The bank" can't simultaneously be "all banks". Sure, if we consider "all banks" then $1 paid into the system can "magically" turn into $1.90 (and far more) without even considering interest. That's my original point! Money is being created by fractional reserve banking. https://en.wikipedia.org/wiki/Money_multiplier https://en.wikipedia.org/wiki/Money_multiplier
  - b_tterc_p 7y ago
    It doesn’t matter which bank the loan is deposited into. That doesn’t affect what’s happening here. I’m saying one bank because it’s easier to understand. If you really want to be pedantic, sure, maybe bank 1 has $1 + interest and bank 2 has $0.90. That’s also possible But it’s important to get that money is not blindly created. It’s done because value is created at a faster rate than physical dollars. You can view banks as a service that invests your dollars. You give them money to loan out and receive some of the interest in compensation. You yourself can create “new money” by making a loan yourself. The new money is just the result of value creation.
    - gridlockd 7y ago
      > It’s done because value is created at a faster rate than physical dollars. [citation desperately needed] I think you're just letting your imagination run wild on how things work and why that makes sense. > You yourself can create “new money” by making a loan yourself. No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can circulate and that can itself be the basis for new money creation. > The new money is just the result of value creation. The new money is the result of fractional reserve lending, period. Whether "value" is created along the way is absolutely not a given.
      - b_tterc_p 7y ago
        > I think you're just letting your imagination run wild on how things work and why that makes sense. If value were not being created fast enough, then people wouldn’t be able to payoff the loans. The loans are made either to enable value creation (business loans) or to fund a purchase and the loan taker agrees to funnel their value creation (salary) back into it. > No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can circulate and that can itself be the basis for new money creation. Obviously I meant to someone else. Though perhaps this one is too hand wavey to be useful