why can't large banks create money?

[3chordcharlie]

Originally posted by: mordantmonkey
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.

I don't think you quite get it.

A bank has deposits. They lend out most of those deposits, which are spent/saved/etc the end result being that most of them end up back in banks. Then the bank lends out most of the new deposits. Wash, rinse, repeat.

For every dollar created by the Fed (or the bank of Canada, in Canada), there are many dollars that 'exist' in various accounts, and they all exist because of fractional reserve banking. So banks actually do 'create' money.

 

[rahvin]

Originally posted by: 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

This is an Econ 101 item and you don't even have the slightest grasp on it. Lets be simple.

Joe deposts 200K in the bank.
I buy a house, it costs 200,000K. I borrow 180K from the Bank, (Joe's 180K), and pay Nancy the balance.
Nancy takes the 180K and deposits it in the bank.
Frank buys a house, he borrows 160k to buy the house and pays Betty who deposts the proceeds in the bank.
John borrows 140K and buys a house from Jen who deposts it in the bank.

So from a initial deposit of 200K there is now (200K+180K+160K+140K) in the bank as a result. Where did the money come from? What would happen if everyone wanted to take their money out of the bank at the same time? The is like the first half of Econ 101 in college, did you not take it or are you just an idiot?

 

[mordantmonkey]

Why must arrogant arseholes assume everyone knows less than they do?

i misunderstood i thought he was talking about short term interest rates. yes i understand that a bank can issue loans 10 the amount they keep in there federal reserve account. I handle drawdown requests all day. i understand how this works. but the banks aren't really "creating" money. they are issuing credits, that "can be" money. what happens if it all turns to crap "everyone withdrawls funds? they become over drawn at the FRB they go belly up and FDIC comes in to bail them out. of course even FDIC has only a sliver of everything they are "insuring" so if everything really goes down the tubes and everyone wants cash all of a sudden (major disaster, electronic ATM, visa check networks going down?) guess what, that money they "created" wasn't acctually "created" the government will then have to actually create money. then we have severe inflation and the whole thing hits the fan.
now please stfu and d i a f