ANZ raises rates!

[hyperinflation]

Let's say I am the bank and you deposit $10 in a standard savings account. I then lend out $9 to A.
There's now $19 in existence from that $10. The $10 in your account and the $9 cash that A has. Plus, the $1 that I, the bank, still have.
Then A spends the $9 and that person(B) then deposits the $9 in his account at my bank. I then lend out $8.10 to C. Now there's your $10 plus B has $9 in his account plus C has $8.10 cash for grand total of $27.10 .
And so on...

Correct, but from my $10 deposit you can only lend out $9 once.. and i if want my $10 back, then you would have to call back the $9 loan, which means the $8.10 loan gets called back, etc... meaning the total CASH that can ever exist from my $10 deposit is $10

 

[Lovey80]

Aaargghhh, not the Money As Debt video!!

I thought this was true, along with my friends when I first saw it. The problem I had was that it didn't match reality and I eventually figured out how it actually works. I say this quite often, it's actually really simple (the basics of it anyway), but takes quite an initial shift in thinking. ie. "it can't be that simple!" But it is, you just have to play it out in your mind. Or real life. Just pretend to be a bank and lend and re-lend money between yourself and some friends and record all the loans and see what happens. The money multiplies magically... It's all to do with TIME.

Yes fractional reserve banking does seem like money creation.. but these loans do get paid back. If you borrow money to buy a house, you pay it back, if a bank borrows money to fund new mortgages, they have to pay it back (unless they issue equity). The moeny in the system that the bank suposedly create isnt real... its just a book entry on the assets and liabilities side.

If a bank borrows $1, it can only most lend out $1.. Sure, that is recorded as capital on the balance sheet of every bank in the fractional system, but thats it - its just CAPITAL. The amount of actual money that can be withdrawn as cash is $1...

The reason that Fractional Reserve Banking is "effectively" money printing is because of the claim on those deposits.

If I borrow 500k from you to buy a house, that is now 500k out of your pocket that you can no longer spend in the economy. The 500k will get paid back over time but the 500k is now out of your hands and in circulation through who ever I paid the money for the house. You have 500k that can ebb and flow where the market dictates.

If you put 500k in the bank in a savings deposit instead of lending directly to me, you still have a claim over 100% of that 500k and can put that money to work any time you wish, but yet under a 10% reserve ratio the bank can then lend out 450k of your money to me. So now you have your 500k to be able to be spent at a moments notice PLUS the 450k that I paid to the bloke for the house. That's 950k either in or available to be in circulation, the cycle continues if the previous home owner puts that money in a bank. The bank just hopes that not enough people like you want their money at a moments notice........ An "effective" increase in the money supply.

While only the central bank can actually print money, fractional reserve banking allows more cash to be available to be spent at any one time than there actually is in circulation = inflation in the same way as the RBA printing money. It's not the same but the end result is the same.

 

[Yippe-Ki-Ya]

The system is fraudulent. It's so crooked that people simply wont believe it.
That video tells it exactly like it is.

 

[hyperinflation]

The system is fraudulent. It's so crooked that people simply wont believe it.
That video tells it exactly like it is.

But people do beleive in it, and we are all happy, and we can continue to make money by borrowing at rate X% and lending at X+Y%

When people stop beleiveing it, there will be a bank run.

 

[2weeke]

Let's say I am the bank and you deposit $10 in a standard savings account. I then lend out $9 to A.
There's now $19 in existence from that $10. The $10 in your account and the $9 cash that A has. Plus, the $1 that I, the bank, still have.
Then A spends the $9 and that person(B) then deposits the $9 in his account at my bank. I then lend out $8.10 to C. Now there's your $10 plus B has $9 in his account plus C has $8.10 cash for grand total of $27.10 .
And so on...

Correct, but from my $10 deposit you can only lend out $9 once.. and i if want my $10 back, then you would have to call back the $9 loan, which means the $8.10 loan gets called back, etc... meaning the total CASH that can ever exist from my $10 deposit is $10

Just out of curiosity, but your example implies that banks would be wary of lending out all the money would be because there is the strong risk that people would ask for their money back. But isn't the point of offering higher interest on fixed deposits and mortgages the point of persuading people to not touch their money in the banks for years so that the banks can go silly season for as long as they can.

 

[Lovey80]

They're doing it because of the rise in wholesale funding costs. They're currently lending at a loss just to keep the credit from drying up with all the knock on effects to prices that that would entail.

They know what will happen if they stop lending or raise rates to match offshore funding costs.

I highly doubt they are lending at a loss. 30% of the mortgage market is borrowed offshore. With the US Fed lending at zero percent interest to US whole sale markets, I highly doubt those offshore lenders can't lend the big 4 at less than the 6.7% so that the big four ans the US banks can make dollars on the spread. That's at least a 6% spread between two lenders.

You forget that banks can only borrow overnight USD at 0%... converting that to AUD and hedging your term and FX risk (using FX forwards and interest rate swaps or cross currency basis swaps) and you are suddenly borrowing at... 5.6%!!

That is still 1% above the 6.6% variable rate loaned out to Aussie consumers. These bankers aren't stupid enough to be borrowing at higher funding costs than they are lending. Sure in your example it's only 1% profit. But if we assume that the Aussie mortgage market is well over $1 trillion we are talking between 350-400billion borrowed offshore on 3-6-9-12-18-24 month terms. That's still 35-40 billion in profit every year on that spread alone. It's not hard to see how banks are still making 6 billion dollar quarterly profits after paying massive bonuses and other costs. No way are they lending at a loss right now......not yet anyway.

 

[mmm....shiney!]

Please describe (or post a link) to the legislative protection that would prevent this from happening.

The Financial Claims Scheme, and the now closed Guarantee of Large Deposits and Wholesale Funding scheme are examples of Gov legislation designed to prevent bank runs.

My point is, that the Big 4 are now so large, that they cannot be allowed to fail without a catastrophic meltdown of the financial system. Now don't get me wrong, I'm not supporting this "too big to fail" mentality, I'm just telling it like it is. Therefore, the powers that be will do all that they can in order to prevent a run.

Anyway, I don't want to see the house of cards come tumbling down - what is required is a restructure. Break the Big 4 into smaller banks, share the risk. That is only one part of the solution.

 

[Big A.D.]

Let's say I am the bank and you deposit $10 in a standard savings account. I then lend out $9 to A.
There's now $19 in existence from that $10. The $10 in your account and the $9 cash that A has. Plus, the $1 that I, the bank, still have.
Then A spends the $9 and that person(B) then deposits the $9 in his account at my bank. I then lend out $8.10 to C. Now there's your $10 plus B has $9 in his account plus C has $8.10 cash for grand total of $27.10 .
And so on...

Correct, but from my $10 deposit you can only lend out $9 once.. and i if want my $10 back, then you would have to call back the $9 loan, which means the $8.10 loan gets called back, etc... meaning the total CASH that can ever exist from my $10 deposit is $10

Just out of curiosity, but your example implies that banks would be wary of lending out all the money would be because there is the strong risk that people would ask for their money back. But isn't the point of offering higher interest on fixed deposits and mortgages the point of persuading people to not touch their money in the banks for years so that the banks can go silly season for as long as they can.

Yes, the point of higher fixed term deposit rates is to provide the bank with some degree of certainty on their deposit balances.

The function that banks perform is acting as a middle man and balancing the needs of long term borrowers against those of short term lenders.

If the bank can entice a short term lender to become a slightly longer term lender through the incentive of a higher interest rate, they have a better ability to offer lower rates to borrowers i.e. of 100% of deposits are "at call" then lending some of those funds out is risky because all the depositors might want to withdraw their funds at the same time, so the bank has to charge borrowers a higher interest rate. If only 50% of deposits are "at call" and 50% are in 3 year term deposits, the bank knows it has half of all it's deposits available for 3 years so it can safely lend those funds out (for three years) without the risk of everybody wanting to withdraw their funds at the same time.

Less risk for the bank equals lower profits, which the bank is fine with because they don't actually have to do much work at all.

 

[Yippe-Ki-Ya]

Let's say I am the bank and you deposit $10 in a standard savings account. I then lend out $9 to A.
There's now $19 in existence from that $10. The $10 in your account and the $9 cash that A has. Plus, the $1 that I, the bank, still have.
Then A spends the $9 and that person(B) then deposits the $9 in his account at my bank. I then lend out $8.10 to C. Now there's your $10 plus B has $9 in his account plus C has $8.10 cash for grand total of $27.10 .
And so on...

Correct, but from my $10 deposit you can only lend out $9 once.. and i if want my $10 back, then you would have to call back the $9 loan, which means the $8.10 loan gets called back, etc... meaning the total CASH that can ever exist from my $10 deposit is $10

not true

 

[Yippe-Ki-Ya]

Please describe (or post a link) to the legislative protection that would prevent this from happening.

The Financial Claims Scheme, and the now closed Guarantee of Large Deposits and Wholesale Funding scheme are examples of Gov legislation designed to prevent bank runs.

My point is, that the Big 4 are now so large, that they cannot be allowed to fail without a catastrophic meltdown of the financial system. Now don't get me wrong, I'm not supporting this "too big to fail" mentality, I'm just telling it like it is. Therefore, the powers that be will do all that they can in order to prevent a run.

Anyway, I don't want to see the house of cards come tumbling down - what is required is a restructure. Break the Big 4 into smaller banks, share the risk. That is only one part of the solution.

Get Australia onto an honest money system - backed by gold. THAT is what's required.

But then we'll get invaded by the US... oops - i forgot - that's already happening :lol:

 

[hyperinflation]

Please describe (or post a link) to the legislative protection that would prevent this from happening.

The Financial Claims Scheme, and the now closed Guarantee of Large Deposits and Wholesale Funding scheme are examples of Gov legislation designed to prevent bank runs.

My point is, that the Big 4 are now so large, that they cannot be allowed to fail without a catastrophic meltdown of the financial system. Now don't get me wrong, I'm not supporting this "too big to fail" mentality, I'm just telling it like it is. Therefore, the powers that be will do all that they can in order to prevent a run.

Anyway, I don't want to see the house of cards come tumbling down - what is required is a restructure. Break the Big 4 into smaller banks, share the risk. That is only one part of the solution.

Get Australia onto an honest money system - backed by gold. THAT is what's required.

But then we'll get invaded by the US... oops - i forgot - that's already happening :lol:

And whats to stop fractional reserve banking using gold?

 

[2weeke]

Correct, but from my $10 deposit you can only lend out $9 once.. and i if want my $10 back, then you would have to call back the $9 loan, which means the $8.10 loan gets called back, etc... meaning the total CASH that can ever exist from my $10 deposit is $10

Just out of curiosity, but your example implies that banks would be wary of lending out all the money would be because there is the strong risk that people would ask for their money back. But isn't the point of offering higher interest on fixed deposits and mortgages the point of persuading people to not touch their money in the banks for years so that the banks can go silly season for as long as they can.

Yes, the point of higher fixed term deposit rates is to provide the bank with some degree of certainty on their deposit balances.

The function that banks perform is acting as a middle man and balancing the needs of long term borrowers against those of short term lenders.

If the bank can entice a short term lender to become a slightly longer term lender through the incentive of a higher interest rate, they have a better ability to offer lower rates to borrowers i.e. of 100% of deposits are "at call" then lending some of those funds out is risky because all the depositors might want to withdraw their funds at the same time, so the bank has to charge borrowers a higher interest rate. If only 50% of deposits are "at call" and 50% are in 3 year term deposits, the bank knows it has half of all it's deposits available for 3 years so it can safely lend those funds out (for three years) without the risk of everybody wanting to withdraw their funds at the same time.

Less risk for the bank equals lower profits, which the bank is fine with because they don't actually have to do much work at all.

Thanks for confirming my thought. So just another thing I was thinking but needs confirmation. From what I'm reading yippe say, he's "wrong" in the sense that banks cannot print money out of thin air. Banks can't create money that doesn't exist (real money anyway, what they have on their balance sheet is just fake numbers). But what we do is that we accept those fake numbers as real money and agree to trade with it, essentially giving them real money for those fake numbers. So the ponzi scheme lies in that we have to continue to deposit more money into the banks than we take out.

I don't study economics cause I consider a lot of its theories as a bunch of crock. I never heard or read anyone say this before, but isn't fractional reserve lending the exact same thing as the reserve bank printing money, both are just creating inflation by creating more money out of thin air? So why are people so hostile towards the RBA for having a printing press when commercial banks can do the exact same thing without one (but on a smaller scale of course).

 

[hawkeye]

Let's say I am the bank and you deposit $10 in a standard savings account. I then lend out $9 to A.
There's now $19 in existence from that $10. The $10 in your account and the $9 cash that A has. Plus, the $1 that I, the bank, still have.
Then A spends the $9 and that person(B) then deposits the $9 in his account at my bank. I then lend out $8.10 to C. Now there's your $10 plus B has $9 in his account plus C has $8.10 cash for grand total of $27.10 .
And so on...

Correct, but from my $10 deposit you can only lend out $9 once.. and i if want my $10 back, then you would have to call back the $9 loan, which means the $8.10 loan gets called back, etc... meaning the total CASH that can ever exist from my $10 deposit is $10

What happens in reality is that many deposits are taken and many loans will be made so obviously the bank doesn't have to get that particular $10 back. Obviously in reality people's home loans don't get called in just because some other guy wants his money. The amount of cash remains the same, the credit expands. It's just in society the word "money" is used in both cases effectively confusing the 2 for many people (including me).

 

[jparrie]

They're doing it because of the rise in wholesale funding costs.

What rise in funding costs? if you are going to print BS, at least quote your sources.

 

[mmm....shiney!]

And whats to stop fractional reserve banking using gold?

nothing

 

[Water&Food]

Break the Big 4 into smaller banks, share the risk. That is only one part of the solution.

All for it. Might aswell Nationalize, Eh, then we might aswell sell off assets to pay off debt. Agghh, dammd if do or dont.

 

[mmm....shiney!]

Break the Big 4 into smaller banks, share the risk. That is only one part of the solution.

All for it. Might aswell Nationalize, Eh, then we might aswell sell off assets to pay off debt. Agghh, dammd if do or dont.

Didn't we used to own Which Bank?

 

[Gold Kiwi]

Yes fractional reserve banking does seem like money creation.. but these loans do get paid back. If you borrow money to buy a house, you pay it back, if a bank borrows money to fund new mortgages, they have to pay it back (unless they issue equity). The moeny in the system that the bank suposedly create isnt real... its just a book entry on the assets and liabilities side.

If a bank borrows $1, it can only most lend out $1.. Sure, that is recorded as capital on the balance sheet of every bank in the fractional system, but thats it - its just CAPITAL. The amount of actual money that can be withdrawn as cash is $1...

How does the interest get paid back? The answer is, it can't. Not without continual exponential growth of the money supply.

 

[Lovey80]

Please describe (or post a link) to the legislative protection that would prevent this from happening.

The Financial Claims Scheme, and the now closed Guarantee of Large Deposits and Wholesale Funding scheme are examples of Gov legislation designed to prevent bank runs.

My point is, that the Big 4 are now so large, that they cannot be allowed to fail without a catastrophic meltdown of the financial system. Now don't get me wrong, I'm not supporting this "too big to fail" mentality, I'm just telling it like it is. Therefore, the powers that be will do all that they can in order to prevent a run.

Anyway, I don't want to see the house of cards come tumbling down - what is required is a restructure. Break the Big 4 into smaller banks, share the risk. That is only one part of the solution.

Sorry mate I missed your post in the mayhem lol

I get what you are saying. But that wouldn't stop a bank run should the people chose to try. It would also not stop the bank in question being instantly insolvent over night. I agree that the gov't and RBA would bail them out at our expense and it should never have gotten to this point.

 

[JulieW]

I'd vote to nationalise any day of the week and hand the power to print currency to the government who could lend it out at 1% per annum for projects of national interest.

I would banish the likes of the self-indulgent pig that purchased a half a million dollar boardroom table for the ANZ to Alice Springs to clean the streets, and the responsible parties that ticked the authority as well .

Does anyone know an islamic bank in Australia? Usury is against their religion.