why can't large banks create money?

[OrganizedChaos]

if money is data and data can be created what prevents them from doing it?

 

[Heisenberg]

Federal pound-me-in-the-ass prison.

 

[dquan97]

quick answer: double-entry bookkeeping. If there's creation of $$, there has to be destruction of $$

 

[Qwest]

inflation?

 

[BCYL]

Independent auditors

 

[StageLeft]

Cause I'll personally bust they head in.

 

[Bootprint]

Originally posted by: OrganizedChaos
if money is data and data can be created what prevents them from doing it?

Why large banks? Why not the little guy. Poof goes the system.

 

[gigapet]

they do create money. not physically. But say you deposit $10,000 into a savings account. A bank can then loan maybe 4x times that money out to others depending on the current federal reserve regulation regarding this.

 

[3chordcharlie]

Originally posted by: gigapet
they do create money. not physically. But say you deposit $10,000 into a savings account. A bank can then loan maybe 4x times that money out to others depending on the current federal reserve regulation regarding this.

close enough - yes in fact, they do create money.

 

[RU482]

Check on ebay, banks used to issue their own currency. It all looked very similar to the modern dollars, but instead of having the national treasury stamp, it had a stamp from your local bank.

I think it all changed when currency switched from being backed by gold

 

[FoBoT]

you need to read the history of why the Federal Reserve was created

http://www.federalreserveeducation.org/FED101_HTML/History/index.cfm

http://www.federalreserve.gov/generalinfo/fract/

 

[BlueWeasel]

Originally posted by: Heisenberg
Federal pound-me-in-the-ass prison.

:laugh:

 

[mordantmonkey]

Because the FRB would pwn them.
Banks get their money from their FRB also make transactions with other banks by routing through the FRB. What good is money that can only be used at your bank and no one elses? besides, the FRB would send storm troopers to destroy their money, since it would be against the law.

 

[Kipper]

Originally posted by: gigapet
they do create money. not physically. But say you deposit $10,000 into a savings account. A bank can then loan maybe 4x times that money out to others depending on the current federal reserve regulation regarding this.

The Required Reserve Ratio is about 10% if I remember correctly...

The fed rarely ever changes this rate...

 

[mordantmonkey]

Originally posted by: 3chordcharlie

Originally posted by: gigapet
they do create money. not physically. But say you deposit $10,000 into a savings account. A bank can then loan maybe 4x times that money out to others depending on the current federal reserve regulation regarding this.

close enough - yes in fact, they do create money.

um, they aren't creating that...they are borrowing it, they have to pay it back, just like the people they loaned it to. they just get to pay a *much* lower interest rate.

 

[gigapet]

Originally posted by: Kipper

Originally posted by: gigapet
they do create money. not physically. But say you deposit $10,000 into a savings account. A bank can then loan maybe 4x times that money out to others depending on the current federal reserve regulation regarding this.

The Required Reserve Ratio is about 10% if I remember correctly...

The fed rarely ever changes this rate...

so the multiplier is 10x not 4x. I pulled it out of my ass thanks for the clarification.

so you deposit $10,000 bank can loan out $100,000 based on that 10k.

 

[RadioHead84]

Originally posted by: mordantmonkey

Originally posted by: 3chordcharlie

Originally posted by: gigapet
they do create money. not physically. But say you deposit $10,000 into a savings account. A bank can then loan maybe 4x times that money out to others depending on the current federal reserve regulation regarding this.

close enough - yes in fact, they do create money.

um, they aren't creating that...they are borrowing it, they have to pay it back, just like the people they loaned it to. they just get to pay a *much* lower interest rate.

No he is right. After taking macro I understand it but before i didnt. Banks loan money which then creates money...which then other banks can loan that money. But no a large bank cant just create money otherwise. The federal bank would beat the crap out of them.

 

[mordantmonkey]

Originally posted by: RadioHead84

Originally posted by: mordantmonkey

Originally posted by: 3chordcharlie

Originally posted by: gigapet
they do create money. not physically. But say you deposit $10,000 into a savings account. A bank can then loan maybe 4x times that money out to others depending on the current federal reserve regulation regarding this.

close enough - yes in fact, they do create money.

um, they aren't creating that...they are borrowing it, they have to pay it back, just like the people they loaned it to. they just get to pay a *much* lower interest rate.

No he is right. After taking macro I understand it but before i didnt. Banks loan money which then creates money...which then other banks can loan that money. But no a large bank cant just create money otherwise. The federal bank would beat the crap out of them.

Bank has deposits. based on those deposits they can get more money from the fed, other banks, etc.
The people they loan to then pay back interest. the bank doesn't "create" this money. They "earn" by charging higher interst rates than what they are borrowing in the first place.
They don't create money anymore than you "create" money by working. The money they get was still at some point issued by the government.

 

[keeleysam]

Originally posted by: Heisenberg
Federal pound-me-in-the-ass prison.

 

[astrosfan90]

Isn't the reserve ratio a variable number though? In other words, can't Greenspan decide to adjust the reserve ration to stimulate or slow down the economy just like interest rates are altered? Or are they the same thing? I'm a little fuzzy on my macro, took it 6 years ago...

 

[ATLien247]

Some of you guys are a bunch of economics geeks...

(a.k.a. you beat me to the standard macroeconomics answer)

 

[mordantmonkey]

Originally posted by: astrosfan90
Isn't the reserve ratio a variable number though? In other words, can't Greenspan decide to adjust the reserve ration to stimulate or slow down the economy just like interest rates are altered? Or are they the same thing? I'm a little fuzzy on my macro, took it 6 years ago...

those are short term interest rates, they influence banks on how much or if to borrow on a short basis, how much to loan out and at what rates for long terms as well but not as directly.
with lower short term interest rates tend to lower other interest rates, but not always. other market factors can be a bigger influence on long term interest rates offered by banks.
also can influence CC interest rates if your card is prime plus

 

[dainthomas]

Originally posted by: mordantmonkey
Because the FRB would pwn them.
Banks get their money from their FRB also make transactions with other banks by routing through the FRB. What good is money that can only be used at your bank and no one elses? besides, the FRB would send storm troopers to destroy their money, since it would be against the law.

It is not against the law. It's just that not everyone has to honor the money you print.

 

[Mo0o]

You're not very smart are you...

 

[Baked]

Because this is the US. In HK, a couple (or a few) banks make money.