How fractional reserve banking and M0 work

[Great_Antibob]

@mustang19

Its not the same Bank, its just different shells that keep being created by “consumers” using their fdic money from the collapses.

It doesn’t really matter. You keep ignoring the liabilities. Even if they’re different shell companies, the liabilities from each are on the books somewhere, perhaps a lot of somewheres.

At some point, Bank 1 (whichever iteration it’s on) can’t actually get anymore money because nobody else has sufficient in reserve to give them a physical dollar anymore or are unwilling to do so. Meanwhile, there are a ton of people who have simply lost their money because of the Bank 1 (all iterations combined) collapses. And the Fed isn’t going to send cash for no reason.

That’s assuming that anybody is willing to loan that dollar to Bank 1 anymore. People aren’t infinitely gullible, and Bank 1 can’t just ask the Fed for more money (that’s the purpose of the reserve requirements - they aren’t just going to send cash every time you ask). They have to get it from somebody else and there is nowhere else at some point.

That’s another point that appears to be missing. You assume the Fed is just going to keep sending cash. Why do you assume this? They will only do so up to a point.

[zoid]

@mustang19

They would have the same excuses you do.

That banking doesn’t work even remotely as you’ve described? Yes, I believe they would.

[Riemann]

A serious question, mustang - what’s your view on the Sovereign Citizen movement?

[mustang19]

@Great_Antibob

It doesn’t really matter. You keep ignoring the liabilities. Even if they’re different shell companies, the liabilities from each are on the books somewhere, perhaps a lot of somewheres.

At some point, Bank 1 (whichever iteration it’s on) can’t actually get anymore money because nobody else has sufficient in reserve to give them a physical dollar anymore because it’s all been hoovered by Bank 2. Meanwhile, there are a ton of people who have simply lost their money because of the Bank 1 (all iterations combined) collapses.

No they havent because of fdic. Nobody loses money except the Bank 1 shell company which never mattered anyway except as a cash source.

[Alpha_Twit]

@mustang19

Exactly I will.

Please do. A few years from now, I look forward to reading your book about how you accomplished this feat.

(wanders away while not hold my breath and wondering what the normal people are doing)

[mustang19]

@Riemann

A serious question, mustang - what’s your view on the Sovereign Citizen movement?

Sovereign Citizens are Fascists

[Colibri]

@beowulff

If you think the world works this way - start your own bank, and get rich!

And then invest the money in a perpetual motion machine!

[Great_Antibob]

@mustang19

No they havent because of fdic. Nobody loses money except the Bank 1 shell company which never mattered anyway except as a cash source.

FDIC is insurance. That’s paid for by the banks. It’s not coming out of thin air.

And those “loans” that Bank 1 sent out are also assets. Again, you are ignoring the liabilities. They keep loaning money but you never show it on your ledger.

[Riemann]

@mustang19

Sovereign Citizens are Fascists

Setting aside their politics, do you think their legal reasoning is sound?

[beowulff]

@mustang19

I will.

Cool! Let us know how it goes.

Before you do, you might want to read this.

[mustang19]

@Great_Antibob

And those “loans” that Bank 1 sent out are assets. They don’t just disappear. How is the bank supposed to collapse when it has such a big positive balance sheet?

Then it wouldn’t collapse. How does this stop Bank 2?
I dont really know/care about Sovereign Fascists

[Chronos]

Ah, OK, now you’re bringing in the FDIC. That wasn’t part of what you were describing before, and is unrelated to the other topics you mentioned. The FDIC is to protect the people against a bank mismanaging their money so badly that they couldn’t get it back, and in such cases, the government will effectively give away money. You’re proposing that someone set up a shell company that’s deliberately mismanaged, in order to get the FDIC money. Yes, that’s possible, and some people do it, but the reason most people don’t do it is because that’ll get you thrown in prison if you’re caught, and it’s usually not too hard to catch the folks who do it.

[mustang19]

@Chronos

Ah, OK, now you’re bringing in the FDIC. That wasn’t part of what you were describing before, and is unrelated to the other topics you mentioned. The FDIC is to protect the people against a bank mismanaging their money so badly that they couldn’t get it back, and in such cases, the government will effectively give away money. You’re proposing that someone set up a shell company that’s deliberately mismanaged, in order to get the FDIC money. Yes, that’s possible, and some people do it, but the reason most people don’t do it is because that’ll get you thrown in prison if you’re caught, and it’s usually not too hard to catch the folks who do it.

“Usually not that hard?” Lol. Its a completely subjective and word of mouth scheme I doubt anyone can stop it.

[Colibri]

@mustang19

“Usually not that hard?” Lol. Its a completely subjective and word of mouth scheme I doubt anyone can stop it.

You’re going to operate a bank without keeping financial records and filing reports?

[mustang19]

@Colibri

You’re going to operate a bank without keeping financial records and filing reports?

The records are not a problem. What you are saying is the intention is bad, which is subjective. And I dont think the government would let banks fail anyway in most cases.

[Hellestal]

@mustang19

Yes it would. Because the mint replenishes consumer cash demand, so every time cash is withdrawn new money is created.

This is not true in any sense.

It’s not true as a physical description of money creation nor as a description of the underlying technical process.

(1) Physically: the “mint” does not create consumer cash. In the US, the Bureau of Engraving and Printing prints up new bills, not the mint. The mint makes new coins only, but both the mint and the BEP would only produce new money based on central bank instructions. It is the central bank only which dictates whether new base money will be introduced. Only if there is an official request for new coins will the mint produce new coins.

(2) For the technical process of money creation: The central bank orders the creation of new physical currency only in exchange for already-existing computer reserves (monetary base), which only they create. Only if a bank actually has monetary base available, and wants to exchange that base for physical currency, will the bank receive physical currency. But this does not increase the total amount of monetary base. It’s a 1-for-1 exchange of electronic reserve base money for physical currency base money. This does not increase total base money.

@mustang19

So “consumers”, meaning whoever participates in this scheme, can keep withdrawing and depositing in different banks indefinitely and the MB will continually increase.

This is also entirely untrue.

The Fed accommodates demand for physical cash only if a bank has monetary base with which to exchange physical base. Even supposing that one bank somehow magically monopolized all reserves, they would only be free to replace their already-exiting electronic reserves with physical cash. The Fed would accommodate their “demand” for physical currency only if the bank already had the reserves to exchange for it. But the private bank could not dictate the creation of more base money. They could replace all of their electronic reserves with physical cash, but at that point, the process would be over. The Fed is under no obligation whatsoever to increase base money.

For previously mentioned reasons, it would not be profitable for a bank to monopolize all reserves. It would be far too costly. The bank would go bankrupt. It would cease to exist.

@mustang19

No they havent because of fdic. Nobody loses money except the Bank 1 shell company which never mattered anyway except as a cash source.

This is also not true.

The FDIC insures private depositors, but only up to 250,000 dollars. Deposits in excess of that amount will lose money, non-depositor lenders to banks will lose money, and the bank owners will be wiped out entirely.

I’m not sure why someone would post a question to a factual forum when they believe they already know the answer, but it’s clear at this point that the OP does not stem from genuine curiosity.

Kind of a shame because the original question was genuinely interesting. It was one I hadn’t seen before. Very rare.

[mustang19]

@Hellestal

This is not true in any sense.

It’s not true as a physical description of money creation nor as a description of the underlying technical process.

(1) Physically: the “mint” does not create consumer cash. In the US, the Bureau of Engraving and Printing prints up new bills, not the mint. The mint makes new coins only, but both the mint and the BEP would only produce new money based on central bank instructions. It is the central bank only which dictates whether new base money will be introduced. Only if there is an official request for new coins will the mint produce new coins.

(2) For the technical process of money creation: The central bank orders the creation of new physical currency only in exchange for already-existing computer reserves (monetary base), which only they create. Only if a bank actually has monetary base available, and wants to exchange that base for physical currency, will the bank receive physical currency. But this does not increase the total amount of monetary base. It’s a 1-for-1 exchange of electronic reserve base money for physical currency base money. This does not increase total base money.

This is also entirely untrue.

The Fed accommodates demand for physical cash only if a bank has monetary base with which to exchange physical base. Even supposing that one bank somehow magically monopolized all reserves, they would only be free to replace their already-exiting electronic reserves with physical cash. The Fed would accommodate their “demand” for physical currency only if the bank already had the reserves to exchange for it. But the private bank could not dictate the creation of more base money. They could replace all of their electronic reserves with physical cash, but at that point, the process would be over. The Fed is under no obligation whatsoever to increase base money.

For previously mentioned reasons, it would not be profitable for a bank to monopolize all reserves. It would be far too costly. The bank would go bankrupt. It would cease to exist.
This is also not true.

The FDIC insures private depositors, but only up to 250,000 dollars. Deposits in excess of that amount will lose money, non-depositor lenders to banks will lose money, and the bank owners will be wiped out entirely.

I’m not sure why someone would post a question to a factual forum when they believe they already know the answer, but it’s clear at this point that the OP does not stem from genuine curiosity.

Kind of a shame because the original question was genuinely interesting. It was one I hadn’t seen before. Very rare.

Thats fine. There can be as many “consumers” as you want if the fdic per consumer limit is a problem. The transaction costs should theoretically be a minor technicality.

[Slash1972]

Ok. I just opened a bank, and I have $1000 in deposits from 2 customers.

What’s my first step to infinite money?

[mustang19]

There’s also the problem of open market operations. Banks can sell treasuries so the government will buy them to meet its rate target. Then use the money they got from those sales to buy, wait for the rate to go down and sell more. By continually forcing the fed to buy treausries they can make infinite money.

[mustang19]

@Slash1972

Ok. I just opened a bank, and I have $1000 in deposits from 2 customers.

What’s my first step to infinite money?

Offer somebody $1 to deposit $1000 (multiply these numbers by billions if they seem small), all the other banks will keep failing and getting bailed out so you get infinite money.