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I appreciate the link. I haven't taken a macroecon or full-fledged finance class, so take my analysis with a grain of salt. If I recall correctly, "demand depo

I appreciate the link. I haven't taken a macroecon or full-fledged finance class, so take my analysis with a grain of salt. If I recall correctly, "demand deposits" are the subject of reserve requirements, not total deposits. The vast majority of deposits are subject to strict regulation and can't be withdrawn on demand (hence the "demand deposit" distinction). They are, in essence, another form of credit. Not a cash equivalent. If we compare demand deposits (1.1T) to securities and net loans and leases (9.63T), we get pretty close to the 10x money multiplier. Because demand deposits are the only things that need to be backed by cash, the rest of the money is essentially re-invested from another institution in the system. Someone didn't come in to the bank and put cash on the table for those deposits. Instead, they told their bank to exchange their credit with another bank. In other words, it's just a change in the ledger sheet between two parties. Simplistically referred to as "created money". The Fed lets banks "create" this money as long as they meet certain rules. The most important being reserve requirements. Getting back to comparison with bitcoin, my original statement ("1000% of deposits") was perhaps an oversimplification. But it's hard to say exactly where bitcoin fits in to a "new banking order". Would it be considered money, e.g. cash equivalent? What then is used as the medium for credit exchange e.g. the other 90% of financial activity? Or is it the unit of account for EVERYTHING, including credit exchange? If so, then how do parties loan money? Won't 90% of bitcoin sit idle for very long periods of time? And does it really make sense to use a deflationary unit of account for an inherently inflationary activity (lending)?

maxerickson 13y ago
I have no idea why you would ignore $8 trillion in interest bearing deposit accounts. To the extent these funds come from other banks, they will show up on the balance sheets of those banks (as loans). Maybe try working from the assumption that what I am saying is (more in the direction of) correct. The banking system may be set up to work in favor of the establishment and bankers, but it isn't a giant fantasy.
- AnIrishDuck 13y ago
  > I have no idea why you would ignore $8 trillion in interest bearing deposit accounts. To the extent these funds come from other banks, they will show up on the balance sheets of those banks (as loans). What? I'm not ignoring those deposits, just pointing out that those deposits are "created money". They are made by banks, not issued by the Fed. The only restriction on their creation is the Fed interest rate on one side and the reserve requirements on the other. In technical terms, they are part of M2, not M0 or M1 [1]. And banks are definitely allowed create M2, though obviously not M0 and M1. > Maybe try working from the assumption that what I am saying is (more in the direction of) correct. The banking system may be set up to work in favor of the establishment and bankers, but it isn't a giant fantasy. What exactly are you asserting? Nowhere did I state that the banking establishment is some kind of giant fantasy. I just made the fairly uncontroversial assertion that banks are allowed to issue more credit than they have cash on hand. In a sense, when they do so they are "creating" money (though this "created" money is technically referred to as M2). 1. http://en.wikipedia.org/wiki/Money_supply http://en.wikipedia.org/wiki/Money_supply

maxerickson 13y ago

I have no idea why you would ignore $8 trillion in interest bearing deposit accounts. To the extent these funds come from other banks, they will show up on the balance sheets of those banks (as loans). Maybe try working from the assumption that what I am saying is (more in the direction of) correct. The banking system may be set up to work in favor of the establishment and bankers, but it isn't a giant fantasy.

AnIrishDuck 13y ago
> I have no idea why you would ignore $8 trillion in interest bearing deposit accounts. To the extent these funds come from other banks, they will show up on the balance sheets of those banks (as loans). What? I'm not ignoring those deposits, just pointing out that those deposits are "created money". They are made by banks, not issued by the Fed. The only restriction on their creation is the Fed interest rate on one side and the reserve requirements on the other. In technical terms, they are part of M2, not M0 or M1 [1]. And banks are definitely allowed create M2, though obviously not M0 and M1. > Maybe try working from the assumption that what I am saying is (more in the direction of) correct. The banking system may be set up to work in favor of the establishment and bankers, but it isn't a giant fantasy. What exactly are you asserting? Nowhere did I state that the banking establishment is some kind of giant fantasy. I just made the fairly uncontroversial assertion that banks are allowed to issue more credit than they have cash on hand. In a sense, when they do so they are "creating" money (though this "created" money is technically referred to as M2). 1. http://en.wikipedia.org/wiki/Money_supply http://en.wikipedia.org/wiki/Money_supply