How is money created?

[Dovahkiin]

We've already discussed where the bank gets the reserves. The Fed.

The bank loans $10,000 to Billy and asks the Fed for $10,000 to clear Billy's check?

Where does a bank get these reserves you think are a given?

The fed.
What I'm referring to.
Enlighten me on the clearing process, since you keep asking questions and refusing to explain why the check won't clear.

Enlighten me on the clearing process, since you keep asking questions and refusing to explain why the check won't clear.

A bank with no deposits loans Billy $10,000. They have no balance at the Fed, how would the check clear?

Well, a bank does need a balance at the fed... This is almost never a problem though.

It's a problem for Billy's loan.

But the banks almost always never have a problem having a balance.. In a scenario where they don't, of course it's a problem.

 

[Toddsterpatriot]

The bank loans $10,000 to Billy and asks the Fed for $10,000 to clear Billy's check?

Where does a bank get these reserves you think are a given?

The fed.
What I'm referring to.
Enlighten me on the clearing process, since you keep asking questions and refusing to explain why the check won't clear.

Enlighten me on the clearing process, since you keep asking questions and refusing to explain why the check won't clear.

A bank with no deposits loans Billy $10,000. They have no balance at the Fed, how would the check clear?

Well, a bank does need a balance at the fed... This is almost never a problem though.

It's a problem for Billy's loan.

But the banks almost always never have a problem having a balance.. In a scenario where they don't, of course it's a problem.

In your scenario, where a bank doesn't need a deposit to make a loan, it's always a problem.

Did you ever figure out where Jen's money goes after she makes a deposit?

 

[Weatherman2020]

Most americans have absolutely no idea.
I wonder what you guys know?
Here's the truth:
- Loans create new money, this shows up in the form of deposits.
- The federal government creates new money through deficit spending. The central bank also plays an important role.

I expect many posters to take an issue with my assertion that Loans create deposits.
Banks do not lend out deposits or multiply up central bank money.

http://www.bankofengland.co.uk/publ...lletin/2014/qb14q1prereleasemoneycreation.pdf

This article explains how the majority of money in the modern economy is created by commercial banks making loans. • Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. • The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.

A big machine cuts paper and another applies ink to it.

 

[Dovahkiin]

The fed.
What I'm referring to.
Enlighten me on the clearing process, since you keep asking questions and refusing to explain why the check won't clear.

Enlighten me on the clearing process, since you keep asking questions and refusing to explain why the check won't clear.

A bank with no deposits loans Billy $10,000. They have no balance at the Fed, how would the check clear?

Well, a bank does need a balance at the fed... This is almost never a problem though.

It's a problem for Billy's loan.

But the banks almost always never have a problem having a balance.. In a scenario where they don't, of course it's a problem.

In your scenario, where a bank doesn't need a deposit to make a loan, it's always a problem.

Did you ever figure out where Jen's money goes after she makes a deposit?

I'm not sure I said a bank doesn't need deposits to make loans, a bank won't even exist if it doesn't have any deposits. I did say that a bank only worries about if the loan will be good for the bank and that's what they base doing a loan off of, they don't worry about current deposits.
What kind of deposit? It goes into her account.

 

[Toddsterpatriot]

Enlighten me on the clearing process, since you keep asking questions and refusing to explain why the check won't clear.

A bank with no deposits loans Billy $10,000. They have no balance at the Fed, how would the check clear?

Well, a bank does need a balance at the fed... This is almost never a problem though.

It's a problem for Billy's loan.

But the banks almost always never have a problem having a balance.. In a scenario where they don't, of course it's a problem.

In your scenario, where a bank doesn't need a deposit to make a loan, it's always a problem.

Did you ever figure out where Jen's money goes after she makes a deposit?

I'm not sure I said a bank doesn't need deposits to make loans, a bank won't even exist if it doesn't have any deposits. I did say that a bank only worries about if the loan will be good for the bank and that's what they base doing a loan off of, they don't worry about current deposits.
What kind of deposit? It goes into her account.

I'm not sure I said a bank doesn't need deposits to make loans,

You said,

"That has nothing to do with banks LENDING OUT DEPOSITS. Banks do not lend out deposits, your example doesn't show that at all. Anyways, your example actually shows that loans create deposits"

How is money created?

If they don't lend out deposits, why would they need deposits to lend?

a bank won't even exist if it doesn't have any deposits.

Why? If they can make loans without deposits, why can't they simply loan?

What kind of deposit?

I gave you 3 separate types.
She walks in with $20,000 in cash and opens a 2 year CD. Where does her deposit go?
She walks in with a $20,000 check and opens a 2 year CD. Where does her deposit go?
She walks in and sets up an incoming wire for $20,000 and opens a 2 year CD. Where does her deposit go?

 

[Dovahkiin]

Well, a bank does need a balance at the fed... This is almost never a problem though.

It's a problem for Billy's loan.

But the banks almost always never have a problem having a balance.. In a scenario where they don't, of course it's a problem.

In your scenario, where a bank doesn't need a deposit to make a loan, it's always a problem.

Did you ever figure out where Jen's money goes after she makes a deposit?

I'm not sure I said a bank doesn't need deposits to make loans, a bank won't even exist if it doesn't have any deposits. I did say that a bank only worries about if the loan will be good for the bank and that's what they base doing a loan off of, they don't worry about current deposits.
What kind of deposit? It goes into her account.

I'm not sure I said a bank doesn't need deposits to make loans,

You said,

"That has nothing to do with banks LENDING OUT DEPOSITS. Banks do not lend out deposits, your example doesn't show that at all. Anyways, your example actually shows that loans create deposits"

How is money created?

If they don't lend out deposits, why would they need deposits to lend?

a bank won't even exist if it doesn't have any deposits.

Why? If they can make loans without deposits, why can't they simply loan?

What kind of deposit?

I gave you 3 separate types.
She walks in with $20,000 in cash and opens a 2 year CD. Where does her deposit go?
She walks in with a $20,000 check and opens a 2 year CD. Where does her deposit go?
She walks in and sets up an incoming wire for $20,000 and opens a 2 year CD. Where does her deposit go?

In the statement you quoted, I did not say a bank doesn't need deposits to make loans. I said that banks don't lend out deposits. Of course a bank needs to hold some deposits, or else no one will go there.
I never said a bank can function with no deposits at all.

 

[Toddsterpatriot]

It's a problem for Billy's loan.

But the banks almost always never have a problem having a balance.. In a scenario where they don't, of course it's a problem.

In your scenario, where a bank doesn't need a deposit to make a loan, it's always a problem.

Did you ever figure out where Jen's money goes after she makes a deposit?

I'm not sure I said a bank doesn't need deposits to make loans, a bank won't even exist if it doesn't have any deposits. I did say that a bank only worries about if the loan will be good for the bank and that's what they base doing a loan off of, they don't worry about current deposits.
What kind of deposit? It goes into her account.

I'm not sure I said a bank doesn't need deposits to make loans,

You said,

"That has nothing to do with banks LENDING OUT DEPOSITS. Banks do not lend out deposits, your example doesn't show that at all. Anyways, your example actually shows that loans create deposits"

How is money created?

If they don't lend out deposits, why would they need deposits to lend?

a bank won't even exist if it doesn't have any deposits.

Why? If they can make loans without deposits, why can't they simply loan?

What kind of deposit?

I gave you 3 separate types.
She walks in with $20,000 in cash and opens a 2 year CD. Where does her deposit go?
She walks in with a $20,000 check and opens a 2 year CD. Where does her deposit go?
She walks in and sets up an incoming wire for $20,000 and opens a 2 year CD. Where does her deposit go?

In the statement you quoted, I did not say a bank doesn't need deposits to make loans. I said that banks don't lend out deposits. Of course a bank needs to hold some deposits, or else no one will go there.
I never said a bank can function with no deposits at all.

I did not say a bank doesn't need deposits to make loans. I said that banks don't lend out deposits.

If they don't lend out deposits, what do they do with them?

Of course a bank needs to hold some deposits, or else no one will go there.

That makes no sense. Savers don't need to go there for borrowers to go.
I could start a company to make mortgage loans and never take deposits.
Credit card companies could make loans without taking deposits.

 

[Toddsterpatriot]

It's a problem for Billy's loan.

But the banks almost always never have a problem having a balance.. In a scenario where they don't, of course it's a problem.

In your scenario, where a bank doesn't need a deposit to make a loan, it's always a problem.

Did you ever figure out where Jen's money goes after she makes a deposit?

I'm not sure I said a bank doesn't need deposits to make loans, a bank won't even exist if it doesn't have any deposits. I did say that a bank only worries about if the loan will be good for the bank and that's what they base doing a loan off of, they don't worry about current deposits.
What kind of deposit? It goes into her account.

I'm not sure I said a bank doesn't need deposits to make loans,

You said,

"That has nothing to do with banks LENDING OUT DEPOSITS. Banks do not lend out deposits, your example doesn't show that at all. Anyways, your example actually shows that loans create deposits"

How is money created?

If they don't lend out deposits, why would they need deposits to lend?

a bank won't even exist if it doesn't have any deposits.

Why? If they can make loans without deposits, why can't they simply loan?

What kind of deposit?

I gave you 3 separate types.
She walks in with $20,000 in cash and opens a 2 year CD. Where does her deposit go?
She walks in with a $20,000 check and opens a 2 year CD. Where does her deposit go?
She walks in and sets up an incoming wire for $20,000 and opens a 2 year CD. Where does her deposit go?

In the statement you quoted, I did not say a bank doesn't need deposits to make loans. I said that banks don't lend out deposits. Of course a bank needs to hold some deposits, or else no one will go there.
I never said a bank can function with no deposits at all.

I said that banks don't lend out deposits.

If banks don't lend out deposits, what do they do with them?
Where do they go?