I found this interesting site on the net:
http://www.mind-trek.com/reports/tl17a.htm
It basically says that banks can pratically “create” as much money as they want.
Is this how our banking system really works and is the average joe blow getting screwed by it?
I took a quick peek at that link. It looked like the standard money conspiracy tripe. The money multiplier is a fairly easy concept taught in freshman econ. Do banks ‘create’ money? Well, they add to the money supply. Everyone in debt to a bank, of course, has the power to ‘destroy’ money. Just pay off your car loan.
I gotta be honest, I didn’t have the patience to read it in detail. I don’t understand the complaint.
The Fed requires banks to keep at least a certain percentage of deposits on hand. The reason is that banks make money by lending – that’s why they can pay interest on savings accounts. They take in lots of money from lots of people and then lend it out. Odds are that not everybody is going to want their money on the same day; when they do it’s called a “run on the bank” and it is disasterous for the bank and everyone with money there. That’s why if there is a severe banking crisis, the gov’t. might close all the banks for a few days – to prevent a run.
In theory the banks could lend out all the money they have in deposits. Then if you wanted to get $1 out of the bank, you’d have to wait for them to call in a $1 loan from one of its debtors. To prevent this, the Fed sets up the required reserve: the bank must keep X% of deposits on hand.
That seems to be the gist of the conspiracy. But there is no conspiracy; this is public knowledge.
The site offers a plan that includes setting the required reserve to 100% and going back on to the gold standard. Setting required reserves to 100% will give banks no reason to be in business. All the buildings, rent, employees, etc. will have to be paid for directly out of fees on deposits instead of being a cost of being in the money lending business. As a primary source of loans, that also means that you will probably never get a mortgage, or a car loan, or a student loan.
Money is “created” through the required reserve in that if the economy is slowing down too much and the Fed thinks that more money will help stimulate it, then it can lower the required reserve and banks will be able to lend more money which means more businesses will be opened, more investments made, more homes built, more cars bought, etc.
As for going on the gold standard…don’t get me started. Some economists thinks it’s a good idea, though I have never heard a good reason why.
Here’s a chapter from an www.drexel.edu/top/prin/txt/money/Ch18ToC.html]online textbook regarding money that may help.