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It is basically true. I work hard and get paid $100 for what I did. I then deposit $100. The bank loans $90 to person X. Person X gives the money to person Y
by hajile 5y ago
It is basically true.
I work hard and get paid $100 for what I did. I then deposit $100.
The bank loans $90 to person X.
Person X gives the money to person Y for some good or service.
Person Y deposits $90 and now there is $190 in the bank.
The bank loans $81 to person X+1.
Person X+1 gives the money to person Y+1 for some good or service.
Person Y+1 deposits $81 and now there is $271 in the bank.
The bank loans $72.90 to person X+1.
...
The last person deposits and there is now $900 in the bank when only $100 worth of actual work has been done. $900 has been printed out of nothing and the original $100 has been devalued.
I get 0.05% interest off my hard work while the bank gets 5-25% interest off of $900 in imaginary money (future earnings, whatever).
If I printed $900 and loaned it out, I'd be arrested.
- joshuamorton 5y ago> The last person deposits and there is now $900 in the bank when only $100 worth of actual work has been done. $900 has been printed out of nothing and the original $100 has been devalued. Are you claiming that when person x gives $90 to person y for some good or service, no work was done? It seems to me that there were 3 transactions totalling 271$ in goods or services rendered, and $271 put into the bank. > If I printed $900 and loaned it out, I'd be arrested. Yes, because you aren't subject to the various banking regulations. Oftentimes privileges come with responsibilities. > I get 0.05% interest off my hard work while the bank Well of course, leaving your money in a savings account is kinda dumb. You too should invest it in a more active way if you want to make a profit.
- rspeele 5y agoYou claim the original $100 has been devalued. But has it? Person X, person X+1, etc. all owe money to the bank to pay back their loan. So it's not like we're all suddenly swimming in cash in this new $1000 economy and nobody cares about your little $100 anymore. When you sum the value in everybody's account, including debts, you still get $100 total. And cash looks pretty desirable to all those debtors.
- phkahler 5y agoWhat you're really complaining about is the bank lending out money. There is no way to know if deposit X+1 is money that was already loaned out. Your accounting of the work done is plain wrong - each of the people in the chain (person Y for example) did some real work and got paid for it (otherwise why did X pay Y at all?). If whomever paid you the $100 got it from a bank, that doesn't invalidate the work you did. What you're describing is related to the "velocity of money" and "propensity to save" which are odd concepts but also one of the most direct ways behavior effects the economy. >> If I printed $900 and loaned it out, I'd be arrested. The bank didn't print one damn thing in your example. They loaned out money that people gave them as deposits.