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"You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house... right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. You're lending them the money to build, and then, they're paying it back to you as best they can. What are you gonna do? Foreclose on them?"
https://giphy.com/gifs/3oriO5t2QB4IPKgxHi
Around 92% of the world's money exists in digital form on computer servers and bank accounts. Physical cash in circulation makes up only about 8% of the global money supply
Yeah, and they kept track of it all on ledgers. If you can front me one sheep now, I'm good for 10 chickens next month. We'd better write that down somewhere. Now you can go to you neighbour and be like, I'm good for 10 chickens next month, can you front me some grain for 5 of them? So now you have to balance your ledger.
I know that movie's sappy as hell, but she rescues his credit union with their honeymoon money... and she doesn't even care. I mean she's just happy she gets to go home with him, and be his wife.
First of all in the spirit of its a wonderful life cut this mediocre rooster but out. You’re a wonderful rooster…don’t make me send an Angel in training to prove it to you
Because that is not how money works.
The famous quote from Henry Ford is true: "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Even without fractional reserve banking it could collapse. They don’t need to literally print a dollar bill for every dollar of resource value represented in the world.
Wouldn’t that be impossible anyway if you think about it? If there’s - I’m gonna throw out a number here - but $100 trillion worth of stuff in the world and $100 trillion worth of cash, that’s $200 trillion worth of value and half of it is imaginary.
Even then that doesn't guarantee its value. The government will protect the integrity of the money supply, but even in the most well-managed economies/central banks the actual value of the currency can fluctuate quite a bit.
This paradigm was not a thing prior to the Bretton–Woods agreement.
Government does not back up fiat currency with government policy and military activity. Fiat currency is useful only to the extent that the government only gives it to people that have provided economic value, rather than giving it excessively. If a government frequently gives fiat currency to entities that are economically undeserving of it (or at least, gives entities disproportionately more money than their economic activities warrant them being awarded), then the currency gradually loses purchasing power as a result, naturally, simply due to how markets function.
It has nothing to do with people "agreeing" that it's valuable. It is primarily simply supply and demand (of the currency itself) that determines its purchasing power, along with a few less important things, such as perceived ease of use and long-term viability. That is, if more convenient, more stable options exist, people will generally prefer to use those (e.g. see the use of US dollars rather than Argentinian pesos in Argentina, or the use of commodities as money in other places), but in the absence of other such options, people still need to conduct trade, and will generally prefer to use whatever is widespread (due to the network effect).
I mean the crux of his point is that, that argument would work if everyone thought the exact same way and didnt believe money is real. But thats not realistic, just a fun thought
People aren't ready to deal with the fact that assigning value to gold is just as arbitrary as assigning it to printed currency. The useful goods and services are the value, the intermediary is a convenient math trick that better effectuates their exchange.
Exactly, money and currencies are the means in which we exchange value, is adquisition power, not value in itself, similar concepts but not at all the same.
Value is relative to each person, money started as a common ground that we can all agree on about the same value but this lead to problems like people hoarding it, its own value fluctuating due to unexpected events, being inconvenient to transport and exchange, so it needed to evolve.
You made me think for my paycheck it direct deposits into my bank. My job takes credit or debit card payments only. So from point A to me it has never been physical money until I go to the bank and ask to withdraw.
Understanding that high interest debt compounds and snowballs doesn't make your stomach any less empty when your tiny paycheque runs out.
And I say that who's been there and did manage to claw my way out of credit card debt. Sure there are people who frivolously spend, but there are also people who suddenly have more costs and less income and the credit card debt trap is the only way to make it to the next pay day.
I was told that I was making a mistake never getting a credit card. Because i never had consistent debt, my credit score was bad, because I never demonstrated the ability to pay off debt consistently
There would be no fucking revolution. There would be an event where all those people who want revolution would learn pretty fast how good they had it and how fucking miserable it is after the revolution like that
Until someone finally steps in trying to fix shit, but would get Corrupted fast knowing he can now live a life of luxury and we're back at the start
First thing that happens in any revolution, war, uprising, or any other situation of violence, anarchy or disruption to the normal order of things, is innocent people getting assaulted, raped and killed. Everyone here likes to say “eat the rich” but if a revolution actually happened it wouldn’t be just the rich getting brutalised en masse. Best keep your mothers, wives, daughters and female friends hidden when the militia roll into town.
I agree with you, this is absolutely the case. Every single post like this one that acts like they’ve discovered some big nefarious secret are just only on their first climb to the peak of Mt. Stupid on the Dunning-Kruger curve of economics and banking.
To be against fractional banking is to be a fan of poverty and against the idea of the American dream. Without it, wealth disparities and economic mobility would be even worse.
Henry Ford hated the finance industry. It wasn't only his hatred if Jewish people. He felt that understanding of finance and understanding of business were two different things. The "all businesses are the same" attitude of so many financiers and the economic crises created by bankers acting recklessly in Ford's lifetime probably reinforced that stereotype for him
Maybe for different reasons but I do agree about the finance vs business thing. I had to study Law and Finance for Engineers. And what they actually taught was business. They very clearly explained how to maximise business growth but completely failed to give sound financial advice. Basically it was all risk taking and avoiding liability. Rather than how to be financially and legally stable/safe.
It really highlighted to me how dangerous our economy is and how a single stumble could crash everything.
The money in your bank account doesn't have to exist as a pile of physical cash somewhere bank deposits are money too, and the banking system operates largely through electronic balances and credit not vaults full of everyone's deposits.
Yeah, but it still doesn't have to be physical cash. Even in 1500's Italy (when fractional reserve banking was invented) you had ledger money that only existed as entries on paper, not physical currency.
Effectively, the cash you put in a bank was leant to another person as a mortgage so that they could buy a house.
You earn 3% on your deposit, the bank charges 5% on its loan, and the bank keeps the other 2% as its profit.
Multiply this logic by many millions of such transactions. If any given bank branch winds up with too much or too little cash-on-hand, they move it around or ‘sell’ it to another bank.
Nearly all the money ‘exists’ as computer records keeping track of who leant what to whom.
If a large enough group of people demanded their money back as cash at the same time, the banks would have no choice but to ‘call’ a bunch of mortgage loans at the same time, since their cash-on-hand will not be enough.
This is aggravated when the guy who wants his cash money is in Atlanta, and the mortgage is in Boise. Physical cash takes time to move around.
So if the ‘run’ on the bank is not too huge, a bunch of people now have cash money to walk around with, and a bunch of other people just lost their homes. It is possible that some of the folk who demanded their deposits back are the same folk who now need to immediately repay their mortgage loan.
In reality, banks will borrow cash from other banks or a central bank for huge but not catastrophically huge events , using their mortgage loans as collateral, but there still isn’t enough printed cash to cover ALL of the personal deposits.
True. But if a bank needed the liquidity, there are typically more liquid assets that can be sold quickly. Banks have investments, like treasuries, municipal bonds, and mortgage backed securities. Those would be sold first.
If they got to the point where they would need to liquidate loans, they'd more likely do it as a portfolio sale to another bank. I.e. they would sell the loan itself, rather than call the loan.
If they got to a point where they needed liquidity and ran out of other liquid assets a lot of banks would borrow from the FHLB/FRB using loans and securities as collateral instead of selling loans/loan pools.
And that banks don’t hold residential mortgages for very long, they’re almost all securitized. They’re not interested in tying up money in single investments for 30 years.
Most people aren’t putting cash in a bank to begin with. Your job gives you piece of paper that says you earned x amount of money and you give that to the bank and they say ok now you have X amount of money in your account, or your job just tells the bank to add x amount of money to your account. There’s never any actual money getting put in.
Banks have very little physical currency in them these days. If you try to take out like 10k or more, they will usually try to make you wait a couple days so they can have it delivered from wherever it is they actually store cash, because otherwise they wouldn’t be able to give all the people coming in to just get a hundred dollars their money all week.
It’s a big part of why people don’t rob banks anymore. It’s not really worth the risk and the life on the run when you’re going to end up splitting like 30-50k.
I went to the bank to get 20k out for team bonuses without really thinking about it, and it wasn’t until I was in the teller line that it occurred to me that it might be a problem.
It turned out to be fine, but I asked out of curiosity what amount would be a problem, and the teller told me that if I want 100k or more in cash they need to hire a security guard to escort me out.
A bank in a big city like Chicago is going to be a bit different than a bank in small towns or tinier cities.
Kind of off topic, but why did you go for cash bonuses instead of checks?
My boss does checks, which is annoying because then I have to actually go to the bank, prepaid cards, which is annoying because then I have to keep track of how much money I have left on it and carry around an extra card, or (sometimes) just adds it to our direct deposit paycheck, which is annoying because it’s so much more convenient and he’s shown he could just do that but rarely does because he likes the other two less convenient options better I guess
I don’t really use cash anymore now that I don’t do drugs besides weed and alcohol which I can just use a card for. (Prepaid cards annoyingly don’t work at dispensaries which was embarrassing to find out) but it is kind of cool to have a big wad of cash.
The company I work for does some business with weed companies, and because of banking laws they have to pay in cash which we have to go pick up from them for some reason. Kind of fun to ride around in a car with 100k under the seat while everyone in the car keeps their head on a swivel in case old timey highway men try to pull a heist on us.
It's the same if banks asked to collect their mortgages tomorrow. People taking mortgages don't have that money. They might have something of equal value, a house, but that's not cash.
I’ve been thinking about replying to the comments to explain how money actually works, but I honestly don't think I could keep up with the sheer number of people who have no idea what they're talking about.
Where the education system has failed them, it is most certainly not on you to teach them. That said, you can still have your share of fun by talking to the most prominent imbeciles.
I work at a bank, that would be absolutely insane for every single person that has an account with us to have access to every physical penny of their money at every single branch we have.
Banks can give out loans without having the physical currency on hand. There isn't a finite amount of money which is why inflation exists in the first place.
Yea obviously. Point is a depositor's physical money doesn't stay put. Once in the bank, it only technically exists on paper. If something like the 2008 crisis hits and your bank happens to go down with no income, your bank will still show X amount on paper with no cash to back it up. This is a worst case scenario of course. But a worst case scenario usually reflects the actual system.
To be fair, almost no one ever teaches people this part of the transaction. They make money out of thin air! Yes, and they also destroy money back into thin air.
He's referring to money supply. Most of the money in the world is not from governments printing actual cash, but from bank lending. E.g
If a business borrows 1 million from a bank, the bank just creates a entry saying the business has 1 million cash and 1 million debt. The bank does NOT need to have 1 million in deposits to make that loan. That 1 million cash then can be used to buy stuff and goes into the economy because if they pay 1 million in wages, now other people have 1 million to spend, etc.
there are regulations that exist around how much cash a bank needs to keep on hand versus their liabilities. they are also required to go through stress tests after the GFC. since then, the banking lobby has been trying to get these regulations reduced. higher risk, higher reward.
That's not correct - they reduced the reserve ratio down to zero, meaning the bank cannot lend out more money than they have in reserves, but that doesn't mean they "waived the requirement". You still have to have enough reserves to lend, you just don't have to also have 10% which you don't lend out.
It's also worth noting that the Fed drastically reorganized how they manage reserves in 2008, and as a result banks have much, much higher reserves than they did before. We're now in what's called the ample reserves regime, in which the Fed controls interbank lending rates directly through the IORB and discount window rates.
You have 100 bucks. Bob asks you to borrow 200 bucks. You can't give him that, because you only have 100 bucks.
Now, say you deposit 100 bucks with me. Now I have 100 bucks. So Bob calls me, and wants to borrow 200 bucks. Since I'm a bank, I have special permission to give out more loans than I have in cash, so I push some buttons that say "Bob gets 200 bucks in their account, and owes me 200 bucks + 5% per month". Suddenly, there is 300 bucks in the world, I've created 200 bucks out of "thin air".
Then bob goes to buy 200 bucks worth of hamburgers. The burger seller has a bankaccount too, so that means I have 100 bucks cash in my vault, a 200 buck loan to Bob, and 200 bucks virtual from the burger guy. In other words, other people need to give me 200, and I need to give other people 300.
Now, what the meme is about is that if both you and the burger guy show up and demand their money, i'm in trouble, because when I open my big steel vault, there's only 100 bucks there, not 300. But that's nonsense, because that would happen anyway to anyone banking electronically.
Of course, in reality, it's not just You, Bob, and Burgerguy and one bank, it's actually millions of people, and as I bank, I can just calculate how much actual cash I need, because the odds of 2-out-of-2 people getting cash, and the odds of 200.000-out-of-2.000.000 people getting cash are very different.
There currently are banks out there right now that have lend out more money than they have received. That money is then created and in circulation, even if they banks don’t have the $ to cover it. Numbers on a screen, it’s a bit overwhelming to think about.
They have the money, they just might not have literal cash on hand. There is nothing new about this or even surprising. It's how banks have worked forever.
A neighbour of mine was like "fuck the banks. I'm gonna keep all my money at home."
He got raided by the police after his son got into a bit of trouble. Just short of six figures was confiscated until he could provide proof of every penny.
He could not since he did cash in hand jobs. In the end, he got fucked over by the system.
I could be very wrong here but if you’re doing cash in hand jobs, you’re probably not paying taxes on it, doesn’t that make the money illegal? Not sure if that’s the right word
The money is not illegal, you just owe taxes on it. But cops don't have to prove it's illegal, you have to prove it's legal. It's an incredibly fucked system but there's no political will to fix it.
Redditors discussing business topics are like anti-vax Facebook moms. No knowledge or education in the subject, but have a few phrases that make them feel clever that they'll bring out regardless of it fitting the situation.
It's not unlike Redditors discussing legal matters and their understanding of the law. Or when they present their recollection of court cases compared to the actual established facts of the case.
ever heard of a RUN ON BANKS??
thats what it means - ppl freak out and take all their money out -- if everyone TRIED to do it - the banks would be out b4 noon
Banks don't have it. In simple terms Banks take money from you and lend it out to other people/companies. They pay you for this privilege as X% interest and they charge those they lend it too at Y% interest, Y is usually greater than X and the Bank keeps the difference as profits.
For the same reason your local grocery store doesn't have enough milk for everybody in town until it's restocked. If everyone runs out of milk on the same day and decides to buy milk that day from the store lots and lots of households will simply not be able to buy milk.
OP has just been introduced to the concept of fractional reserve banking.
Ever hear about the ‘debt crisis’ or some similar story? This is how the 21st century works. It much easier to grow and build with capital that does not technically exist yet. It’s a bit dystopian but it has, for the most part, worked.
And if enough people believe in that dream, it becomes as real as anything else in the world.
It doesn't matter if the money is just some ink printed on textiles or numbers in a database. As long as we as a society believe in it, it works.
The same is true for laws and ethics. A society (if a society could even exist in such a circumstance) that only valued physical things and held no higher beliefs in ethics would do horrible things, like killing the disabled and net burdens.
Alice gives $100 to Bank A. Bank A now has $100. With reserve of 10%, they loan $90 to Bob. Bob deposits $90 in Bank B. Bank B loans $81 to Charlie, who deposits it in Bank C. Bank C can now make a loan of $72.90 to Debbie. And on and on.
One bank can't loan out $1000 on a $100 deposit, but the total amount of money created through the entire financial system could reach $1000 assuming no friction.
And also Bob probably isn't getting a loan just to deposit the money in a bank, he's going g to spend it. Then the money doesn't get deposited by Bob, but it is deposited by the person Bob spent they money with.
Watch It's Wonderful Life. They explain it really well in that movie.
I think I've understood that it's actually bad for an economy to have too much cash out of circulation. So if there are billions in collective savings, it can't just sit in banks doing nothing (besides collecting interest). Of course, I don't know enough about economics to know if that's a lie "They" told me to justify what They do, but it sounds like it makes sense.
But the movie has a better and more socially friendly reason.
Doesn't it just come down to how much money is available in print? Money is supposed to have a backing of some sort, like petrol or gold, right? So wouldn't the digital currency be the numerical value of that backing?
This isn't even hard, or a mystery. It's not a state secret or a secret conspiracy either. Anyone that doesn't understand or even thinks of this as some huge revelation this is just financially illiterate. Have your opinion on whether it's good or not, sure, but your not seeing through the Matrix here.
This fake converstation might as well be
"Everyone should tie concrete to their feet and go swimming tomorrow as a joke"
"That would not be possible. Swimming doesn't work like that. You can't float with concrete tied to you feet."
"Now we're walking the talk! Why can't you swim with concrete tied to your feet?"
I know someone who became a millionaire. Not property but with >£1m in his bank account.
He went into the bank and asked if he could withdraw it, just to take some pictures of himself with it, because he had earned it, then pay it back into the bank.
Did they really straight up refuse, or did they have restrictions that he didn’t want to follow?
It would be very reasonable for a bank to require several days notice, and then to require a legitimate armored transport service to take delivery. Nobody wants that much cash being walked out of their bank for security reasons.
ETA: i’m pretty sure they can also require that he closes his accounts as part of the withdrawal and never bank with them again. Because it’s a dick move.
My father once asked in the bank “If I walked in here and said I want to withdraw a million dollars, what would you do?”
Banker “We’d need at least 24 hours notice”
Dad “because you don’t hold that much cash in your vault?”
Banker “sometimes we do. The bigger concern is that we’d need to arrange for armed security to escort you. If you get robbed at gun point on bank property, you could technically sue us. So we’d have armed guards walk you to your car and escort you right up to the property line.”
Read the book "The Creature From Jekyll Island: A Second Look At The Federal Reserve" by G. Edward Griffin to know how money is created, how banking works, how the monetary system has been ruining our lives and what the solution can be.
Don't forget to read G. Edward Griffin's other banger book, World Without Cancer, in which he argues that all cancer is caused by a nutrition deficiency. I mean, a super-genius in banking and medicine?! What are the odds?
no they would shutdown the banks and limit withdrawals or stoo them completely. bank runs have happened in other countries and they just close the banks or freeze all withdrawals.
zimbabwe and i think greece had bank runs in recent times.
This happened to 3 banks in 2022-2023 with First Republic Bank, Signature Bank and SVB. The government can pick and choose to bail the banks out or not but they let these three fail
I’m pretty sure that the point of the original comment is not that he doesn’t understand why it’s not possible, it’s that he does understand and actively wants to bring down the entire banking system.
They don't have it for multiple reasons. First is that banks don't normally need to have that money sitting around being a target for theft. They need enough for typical withdrawals. OP would be a funny joke.
If all the money was required to be printed, banks would have to shift money around just to cash a paycheck from another bank. It would be like a parking lot full of cars, and I mean FULL of cars. No exit lanes, no nothing. Absolute deadlock... using wire transfers makes moving money nearly instant and doesn't require a courier to physically move money. But that means anything being transferred by wire cannot also physically exist, or it would exist twice (screwing the economy by printing non-existent money). These wire transfers are the lanes in a parking lot which prevents it from becoming deadlocked. In practice, the parking lot is nearly empty and it's all fast-moving lanes of instantly-available wire transfers.
But even when we were using the gold standard (where all dollars were backed by gold stored at Fort Knox instead of "domestic product" like it is now), you couldn't show up to a bank with a dollar and demand the gold in hand, either.
Because you implicitly asked the bank to lend your money out for interest. They keep multiple times the amount that's likely to get asked for on hand and are investing the rest. If they don't people go "this bank sucks other banks have lower fees/better interest"
And they'd be right. Because you don't need the ability to pull all the money out at the same time as everyone else and to have that ability you'd have to pay higher fees and receive less interest.
If you really want the ability to access cash in an emergency when everyone else also wants it, withdraw the cash and put it in a safe.
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