Re: How banks make money
Originally Posted by Muddy
One reason is by hanging on to people's money.
Money is by and large a pure illusion. It is just a number in a computer screen, not actual cash. If you were to add up all the amounts in people's bank accounts and compare it wish all the cash in circulation and in vaults you would find the accounts massively (by many multiples) outweigh actual money.
Banks don't need to fanny around with tiny amounts of interest accrued via delayed transfers. Banks literally invent money out of thin air in a system called Fractional Reserve Banking.
It is a totally fraudulent system that they have been operating for many years and will ultimately result in financial crashes.
The banks lend money to people (your money) and charge them substantial interest. However this is a cumulative process and means that banks effectively just print money that never existed.
The banks HAVE to keep a small fraction of the money you deposit but it can be as low as 3% in some cases.
Let's suppose it's 10%
So, one day you deposit £10,000 in your bank
The bank keeps £1000 (10%) of that tucked away
The other £9000 it lends to borrowers at a lucrative interest rate
Those borrowers get that £9000 cash and it gets deposited in THEIR own bank account
Now THEIR bank does what your bank does. They keep 10% of it secure i.e. £900 and then loan out the rest to someone else i.e. £8100
And this goes on and on so from your original deposit of £10,000
– You deposit £10,000, Your bank loans someone £9000
– That person deposits £9000, Their bank loans someone £8100
– That person deposits £8100, Their bank loans someone £7290
– That person deposits £7290, Their bank loans someone £6561
– That person deposits £6561, Their bank loans someone £5905
– That person deposits £5905, Their bank loans someone £5314
– That person deposits £5314, Their bank loans someone £4783
and so on. Already there is now £56,953 in people's bank accounts all from that original deposit of £10,000.
The money is literally being invented out of thin air and they print the bank notes to meet the demand as people withdraw their balances.
The banks are charging interest on all of this money being lent out even though it never really existed. That's interest being charged on fictional nonexistent money. Nice work if you can get it !!!
The problem with all of this is that it is perilous to the economy. With so much fictional money in bank account systems there is a huge danger that if everyone demanded their actual money at the same time, well the banks would have to close because that money does not exist. It isn't physically there as cash in a vault and it isn't necessarily backed by tangible assets. That's why in the past we have seen building socieites like Northern Rock and others get into trouble and unable to provide cash to its customers when they all demand their money.
When that happens the Central Bankers get involved and bail them out, or let them go bust.
Really the ability to actually print money, real cash, should lie with a country and its government and not with provate firms (i.e. fraudulent banksters). But this lucrative ability to print the cash has over 100s of years flipped back and forth between the banking cartels and goverments.
When the money printing is in the hands of the country, there is stability and a well managed economy. When the banksters have it, they greedily run these fraudulent systems and send economies crashing.
If the US is to survive, it needs to wrest back control of the money printing from the Federal Reserve.