4 ms·

I’m not really following this. Let’s say I secretly tag my dollars with a red mark. Deposit $1000 cash, and then my account shows a $1000 balance. My red $1000

I’m not really following this. Let’s say I secretly tag my dollars with a red mark. Deposit $1000 cash, and then my account shows a $1000 balance. My red $1000 is probably going to wind up being withdrawn in an ATM by someone else, or used in a mortgage, or something else, but my red tagged $1000 bills don’t suddenly become a multiplied amount of money!

sumedh 4y ago
That is what the average person thinks what happens but in reality the bank does not even care about your deposit. What actually happens is that the bank just creates a new money from thin air by just adding another zero their account and then transferring some of that new money to the person who wants a loan. The US fed does this too, they add a zero at the end of the existing account and create more money. Its all in a database no cash is being printed.
- thehappypm 4y ago
  So you’re telling me that banks routinely scam the ACH system? Pretty sure this is 100% FUD.
  - sumedh 4y ago
    Why do you think its FUD, what do you mean scam the ACH system?
matheusmoreira 4y ago
You deposit $1000. The bank does the following accounting: accounts["thehappypm"] += 1000 accounts["reserves"] += 1000 Then I go to the bank and request a $900 loan. It knows it has $1000 lying around doing nothing useful so it just gives a fraction of it to me as a loan. The bank does the following: accounts["reserves"] -= 900 accounts["matheusmoreira"] += 900 So now we have three accounts: accounts["thehappypm"] == 1000 accounts["matheusmoreira"] == 900 accounts["reserves"] == 100 So the bank received a $1000 deposit, kept a $100 reserve and loaned out $900. That $900 is completely made up money. They just credited my account with that amount out of nowhere. I'm supposed to go out there and earn money to pay it back. If I do, all is well. If I default? The bank has its books showing they owe you $1000 but they only have $100 in reserve. The illusion is shattered the second you attempt to withdraw that money. In the real world, it's not just you and me. It's banks leveraging their massive reserves on risky loans and investments that fail, thousands of customers noticing and attempting to withdraw everything they have all at the same time, getting nothing, leading them to default on their debts and so on and so on until the government literally manufactures even more money to bail out the banks by "injecting liquidity" into them and restoring their reserves, putting an end to the bank run at the cost of even more inflation. So I decide to spend that $900 on a computer for software development in order to work remotely. I go to the store and buy one. accounts["matheusmoreira"] -= 900 accounts["store"] += 900 accounts["reserves"] += 900 accounts["thehappypm"] == 1000 accounts["matheusmoreira"] == 0 accounts["store"] == 900 accounts["reserves"] == 1000 The bank just received a $900 deposit, so its original reserves are restored. This means another loan is possible! This cycle repeats itself many times as money circulates until millions have been created out of thin air. Notice that the only way those accounts balance is if I pay back my $900 loan. If I lose my job before that happens? They won't balance and the bank will have to pick and choose who can withdraw and how much. Not too long ago, Binance had restrictions on bitcoin withdrawals. Unverified accounts could only withdraw a small amount per day, verified accounts could withdraw a larger but still limited sum. Hmm...
- sumedh 4y ago
  > It knows it has $1000 lying around doing nothing useful so it just gives a fraction of it to me as a loan. The bank does the following: The bank does not have to do this everytime, Most of times it just creates a loan account and adds a number in the database and creates money out of thin air.
- thehappypm 4y ago
  I still don’t see the problem. At no point is cash conservation broken. They may say that my account has $900 in it when that cash doesn’t exist, it’s been used for some other end, but that’s not weird or unusual, or even interesting. I know that the bank has plenty of other peoples’ $900 that if I wanted that cash I could take it.
  - matheusmoreira 4y ago
    > I still don’t see the problem. The problem is banks operate in a state of perpetual insolvency. Their ability to pay off their debts to customers depends on the state of the larger economy. Too many defaults and the whole thing comes crashing down. > At no point is cash conservation broken. It never existed to begin with. All that's required for the illusion to disappear is for enough people to attempt to withdraw funds at the same time. > I know that the bank has plenty of other peoples’ $900 that if I wanted that cash I could take it. The bank has money until it doesn't. https://en.wikipedia.org/wiki/Bank_run https://en.wikipedia.org/wiki/Bank_run > Many of the recessions in the United States were caused by banking panics > The Great Depression contained several banking crises consisting of runs on multiple banks > The global financial crisis that began in 2007 was centered around market-liquidity failures that were comparable to a bank run https://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008 https://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008 > The International Monetary Fund estimated that large U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans > Lack of investor confidence in bank solvency and declines in credit availability led to plummeting stock and commodity prices > The crisis rapidly spread into a global economic shock, resulting in several bank failures > The de-leveraging of financial institutions, as assets were sold to pay back obligations that could not be refinanced in frozen credit markets, further accelerated the solvency crisis > governments and central banks provided then-unprecedented trillions of dollars in bailouts and stimulus, including expansive fiscal policy and monetary policy to offset the decline in consumption and lending capacity, avoid a further collapse, encourage lending, restore faith in the integral commercial paper markets, avoid the risk of a deflationary spiral, and provide banks with enough funds to allow customers to make withdrawals People complain about Tether but the whole banking system is just Tether on steroids.

sumedh 4y ago

That is what the average person thinks what happens but in reality the bank does not even care about your deposit. What actually happens is that the bank just creates a new money from thin air by just adding another zero their account and then transferring some of that new money to the person who wants a loan. The US fed does this too, they add a zero at the end of the existing account and create more money. Its all in a database no cash is being printed.

thehappypm 4y ago
So you’re telling me that banks routinely scam the ACH system? Pretty sure this is 100% FUD.
- sumedh 4y ago
  Why do you think its FUD, what do you mean scam the ACH system?

matheusmoreira 4y ago

You deposit $1000. The bank does the following accounting: accounts["thehappypm"] += 1000 accounts["reserves"] += 1000 Then I go to the bank and request a $900 loan. It knows it has $1000 lying around doing nothing useful so it just gives a fraction of it to me as a loan. The bank does the following: accounts["reserves"] -= 900 accounts["matheusmoreira"] += 900 So now we have three accounts: accounts["thehappypm"] == 1000 accounts["matheusmoreira"] == 900 accounts["reserves"] == 100 So the bank received a $1000 deposit, kept a $100 reserve and loaned out $900. That $900 is completely made up money. They just credited my account with that amount out of nowhere. I'm supposed to go out there and earn money to pay it back. If I do, all is well. If I default? The bank has its books showing they owe you $1000 but they only have $100 in reserve. The illusion is shattered the second you attempt to withdraw that money. In the real world, it's not just you and me. It's banks leveraging their massive reserves on risky loans and investments that fail, thousands of customers noticing and attempting to withdraw everything they have all at the same time, getting nothing, leading them to default on their debts and so on and so on until the government literally manufactures even more money to bail out the banks by "injecting liquidity" into them and restoring their reserves, putting an end to the bank run at the cost of even more inflation. So I decide to spend that $900 on a computer for software development in order to work remotely. I go to the store and buy one. accounts["matheusmoreira"] -= 900 accounts["store"] += 900 accounts["reserves"] += 900 accounts["thehappypm"] == 1000 accounts["matheusmoreira"] == 0 accounts["store"] == 900 accounts["reserves"] == 1000 The bank just received a $900 deposit, so its original reserves are restored. This means another loan is possible! This cycle repeats itself many times as money circulates until millions have been created out of thin air. Notice that the only way those accounts balance is if I pay back my $900 loan. If I lose my job before that happens? They won't balance and the bank will have to pick and choose who can withdraw and how much. Not too long ago, Binance had restrictions on bitcoin withdrawals. Unverified accounts could only withdraw a small amount per day, verified accounts could withdraw a larger but still limited sum. Hmm...

sumedh 4y ago
> It knows it has $1000 lying around doing nothing useful so it just gives a fraction of it to me as a loan. The bank does the following: The bank does not have to do this everytime, Most of times it just creates a loan account and adds a number in the database and creates money out of thin air.
thehappypm 4y ago
I still don’t see the problem. At no point is cash conservation broken. They may say that my account has $900 in it when that cash doesn’t exist, it’s been used for some other end, but that’s not weird or unusual, or even interesting. I know that the bank has plenty of other peoples’ $900 that if I wanted that cash I could take it.
- matheusmoreira 4y ago
  > I still don’t see the problem. The problem is banks operate in a state of perpetual insolvency. Their ability to pay off their debts to customers depends on the state of the larger economy. Too many defaults and the whole thing comes crashing down. > At no point is cash conservation broken. It never existed to begin with. All that's required for the illusion to disappear is for enough people to attempt to withdraw funds at the same time. > I know that the bank has plenty of other peoples’ $900 that if I wanted that cash I could take it. The bank has money until it doesn't. https://en.wikipedia.org/wiki/Bank_run https://en.wikipedia.org/wiki/Bank_run > Many of the recessions in the United States were caused by banking panics > The Great Depression contained several banking crises consisting of runs on multiple banks > The global financial crisis that began in 2007 was centered around market-liquidity failures that were comparable to a bank run https://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008 https://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008 > The International Monetary Fund estimated that large U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans > Lack of investor confidence in bank solvency and declines in credit availability led to plummeting stock and commodity prices > The crisis rapidly spread into a global economic shock, resulting in several bank failures > The de-leveraging of financial institutions, as assets were sold to pay back obligations that could not be refinanced in frozen credit markets, further accelerated the solvency crisis > governments and central banks provided then-unprecedented trillions of dollars in bailouts and stimulus, including expansive fiscal policy and monetary policy to offset the decline in consumption and lending capacity, avoid a further collapse, encourage lending, restore faith in the integral commercial paper markets, avoid the risk of a deflationary spiral, and provide banks with enough funds to allow customers to make withdrawals People complain about Tether but the whole banking system is just Tether on steroids.