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When you're a bank you get rent from many economic transactions without providing anything of value except being rich to start. And even better, if you're a rea

When you're a bank you get rent from many economic transactions without providing anything of value except being rich to start. And even better, if you're a real bank, then you can create money out of thin air as debt on your balance sheet via fractional reserve banking. There's effectively a universal basic income for banks. What company wouldn't want to get in on that?

whatshisface 7y ago
Thin air? What are all the employees doing then?
- brenden2 7y ago
  Most of them are sales people. The OP is correct, banks increase the monetary supply through fractional reserve.
- matheusmoreira 7y ago
  Yup, thin air. When people borrow money, the bank just creates the money out of nowhere. That money doesn't actually exist until the debt is paid. Banks are ultimately responsible for the extreme inflation of virtually all currencies currently in use.
  - Kye 7y ago
    What do you consider extreme inflation?
  - briatx 7y ago
    That is not at all how the money multiplier works. https://en.m.wikipedia.org/wiki/Money_multiplier https://en.m.wikipedia.org/wiki/Money_multiplier
- Dylan16807 7y ago
  They do a lot! But it's not part of where the money comes from. Imagine a normal grocery store. Then imagine it suddenly gets a button that makes more stock magically appear on the loading docks. Almost as much as they've sold since the last button press. It's great for profit margins, but the employees still have to do their jobs, and their jobs are basically unrelated to the magic button.
zajio1am 7y ago
> And even better, if you're a real bank, then you can create money out of thin air as debt on your balance sheet via fractional reserve banking. There's effectively a universal basic income for banks. No. UBI is income (increases assets), while money creation in banks is balance-neutral (increases both assets and liabilities). While technically during lending banks create both loans (assets) and deposits (liabilities), it is more complicated: When a loan is taken, it is usually not taken just to sit in a bank account, it is to be spent. When that happens (by cash withdraw or transfer to a different bank), a bank must release/transfer base money, which it can get from cash deposits, incoming transfers or in exchange for some other assets. Therefore, although banks create M1 money by lending, they are limited in practice by necessity to keep balance of base money. So it is more a distributed/emergent behavior, where each bank ability to create M1 money is limited by its market share and the rate of money production by other banks.

whatshisface 7y ago

Thin air? What are all the employees doing then?

brenden2 7y ago
Most of them are sales people. The OP is correct, banks increase the monetary supply through fractional reserve.
matheusmoreira 7y ago
Yup, thin air. When people borrow money, the bank just creates the money out of nowhere. That money doesn't actually exist until the debt is paid. Banks are ultimately responsible for the extreme inflation of virtually all currencies currently in use.
- Kye 7y ago
  What do you consider extreme inflation?
- briatx 7y ago
  That is not at all how the money multiplier works. https://en.m.wikipedia.org/wiki/Money_multiplier https://en.m.wikipedia.org/wiki/Money_multiplier
Dylan16807 7y ago
They do a lot! But it's not part of where the money comes from. Imagine a normal grocery store. Then imagine it suddenly gets a button that makes more stock magically appear on the loading docks. Almost as much as they've sold since the last button press. It's great for profit margins, but the employees still have to do their jobs, and their jobs are basically unrelated to the magic button.

zajio1am 7y ago

> And even better, if you're a real bank, then you can create money out of thin air as debt on your balance sheet via fractional reserve banking. There's effectively a universal basic income for banks. No. UBI is income (increases assets), while money creation in banks is balance-neutral (increases both assets and liabilities). While technically during lending banks create both loans (assets) and deposits (liabilities), it is more complicated: When a loan is taken, it is usually not taken just to sit in a bank account, it is to be spent. When that happens (by cash withdraw or transfer to a different bank), a bank must release/transfer base money, which it can get from cash deposits, incoming transfers or in exchange for some other assets. Therefore, although banks create M1 money by lending, they are limited in practice by necessity to keep balance of base money. So it is more a distributed/emergent behavior, where each bank ability to create M1 money is limited by its market share and the rate of money production by other banks.