help pls: fractional reserve loan: balance sheet & money supply step by step


A

Am Nym

For each step please list the relevant accounting status for the bank,
the lendee, and the impact on the money supply in the economy, given:

Your bank has 10% reserve requirement. There is no penalty for early loan
payoff. Your credit is approved, just got a 100k loan from a bank.

case 1

- "bank ABC" 'deposits' the loan money in lendee's "bank ABC" account
- The bank is now risking a loss of what?:
- 20k, or 100k?
- What does the bank's balance sheet look like?
- What happened to money supply in economy?
- did it go up by 90k?
- What happened to capital reserve of bank?
- did it go down by 20k?

- You hold the money in your account for an insignificant amount of
time so the interest is negligible, then you pay back the loan.

- There should be no net change to the bank's balance sheet.
- There should be no net change to the money supply in the economy.
- Did this loan payoff destroy 90k in the economy?

case 2
Lendee spends entire loan on goods or services. Pays it back after
30 years under 3% compound interest - all same questions...
 
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A

alan

Case 3
You spend the whole 100K on snake oil and default on the loan.


Is the net affect on the economy zero if the Government just prints
another 100k and gives it back to bank?
 
A

Amazin

Of course, the money never existed in the first place. The central bank'
simply lends arithmetic, which the banks multiply by twelve in the
fractional reserve lending racket. The fact that at any stage it is called
'debt' is merely the swindle that the duly bought and paid-for 'law' says we
have to repay.. It takes a pretty mad monkey to acquiesce to that, and most
certainly rapacious hyenas to inflict such rodent garbage.

Do you want to know who these hyenas are, and how they manage to craft such
'laws' into existence and impose them on us?

alan said:
Case 3
You spend the whole 100K on snake oil and default on the loan.


Is the net affect on the economy zero if the Government just prints
another 100k and gives it back to bank?

--- news://freenews.netfront.net/ - complaints: (e-mail address removed) ---
 
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W

Windmill

Amazin said:
Of course, the money never existed in the first place. The central bank'
simply lends arithmetic, which the banks multiply by twelve in the
fractional reserve lending racket.
I'm not sure why some people object to fractional reserve banking.

The problem with banking, whether Islamic or conventional, is that
money which is loaned by a bank comes back to the bank again.

Sometimes more quickly and sometimes more slowly, sometimes directly
and sometimes via one or more other banks, but it comes back.

The recipient of the loan may use it to pay another customer of the
same bank, in which case the money immediately appears as a new deposit
for that bank, or the money may flow back and forth through other
banks, returning after a delay (unless people stop dealing with the
originating bank).

That's a bit different from the situation of an individual who makes
a loan.

If banks were to treat the returning money as new money which they
could immediately and without limit loan out again, the money involved
in later loan(s) would *also* return to the bank(s).

That could mean an endless and infinite increase in the money supply.
(It would also be very dangerous).

So there has to be some mechanism for limiting the total amount of
lending.
Fractional reserve lending is probably the cleverest way to do it
automatically.
But the fraction has to be a sensible one.
100% reserve means the bank makes no loans, earns no money, and goes
bust.
50% reserve is very safe - the banks are only allowed to lend 50% of
the money they started with, and only 50% of the money which returns to
them, so the most they can lend is 1/2 + 1/4 + 1/8 + 1/16........ of
what they started with. In total, that amounts to the whole of what
they began with. Which is pretty safe, but means that money is tight
and loans are hard to come by.
10% is _maybe_ fairly safe, but it does mean that the banks loan out in
total 10 times the money they began with.

Of course there are all kinds of complications which a non-banker (and
probably quite a few bankers) can't hope to understand. I know I only
have a vague outline of how some of it works, and for some reason there
don't seem to be any good primers from which one could learn.
But fractional reserve banking is probably better than someone waking
up each morning, looking over a few figures, and telling the banks
'today you can collectively loan no more than 1 trillion'.
Would you trust Osborne to get that right on a daily basis?
The fact that at any stage it is called
'debt' is merely the swindle that the duly bought and paid-for 'law' says we
have to repay.. It takes a pretty mad monkey to acquiesce to that, and most
certainly rapacious hyenas to inflict such rodent garbage.
Do you want to know who these hyenas are, and how they manage to craft such
'laws' into existence and impose them on us?
If you're saying that it's all smoke and mirrors, I agree. But there
has to be some way to negotiate the exchange of goods and services,
there have to be laws to regulate it, and something which has evolved
over thousands of years is likely to work better than something dreamed
up yesterday.
Which is not to say that refinements are unnecessary, though those who
benefit from the present arrangements would probably disagree.
 

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