Who owns the money?

MR. · 18 April 2009

Maybe a simple few questions, but have found it hard to get my mind around.

For every loan a bank grants who was the depositor?

If near most are against cash investments, who is loaning the cash to the banks?

or does it simply not exist!

doctorj · 18 April 2009

A singular dollar circulates many times.

For example, lets say you deposit $1000 with the bank. Under APRA's laws, the bank has to retain $100 (i've made up the %). Banks like to make money, so they loan out the remaining $900. This is spent or saved and eventually ends up in another bank.

This bank puts $90 of the $900 aside and lends $810. This is also spent or saved and ends up in another bank.

This other bank puts aside $81 and lends $729.

Etc etc etc.

The amount the banks have to put aside varies from country to country etc etc. Banks finance themselves through deposits, bond issuance, equity, quasi equity etc to give them the cash they need to make the money-go-round.

disarray · 18 April 2009

buy some physical gold.

GumbyLearner · 18 April 2009

disarray said:
buy some physical gold.

Have to agree with disarray there!

If you really want to know who lends...type fractional reserve banking into the wikipedia search engine and go from there...

Just my

Wysiwyg · 18 April 2009

disarray said:
buy some physical gold.

If an ounce of gold was guaranteed to increase in value yes.

An ounce bought for US$600 30 years ago (1/3 of a life time) could be sold for US$900. That is a 50% increase in cash you would get in return on investment. Considering everything increases in price year on year, then the 50% return on investment would be dramatically reduced in its purchasing power.

Maybe you could add after "buy some physical gold" at per ounce lows.

p.s. ... sitting on a negative value from late 70`s for 20 + years isn`t real smart investing.

Tysonboss1 · 18 April 2009

Can somebody explain how the fractional reserve banking system expands the supply of money, I dont get it.

nomore4s · 18 April 2009

disarray said:
buy some physical gold.

Um, how does that answer the op's question? And what is the relevence to the op's question?

MR there is some interesting stuff in this thread on the subject. There are some links in that thread which may also help answer your question.

MR. · 18 April 2009

doctorj said:
A singular dollar circulates many times.

For example, lets say you deposit $1000 with the bank. Under APRA's laws, the bank has to retain $100 (i've made up the %). Banks like to make money, so they loan out the remaining $900. This is spent or saved and eventually ends up in another bank.

This bank puts $90 of the $900 aside and lends $810. This is also spent or saved and ends up in another bank.

This other bank puts aside $81 and lends $729.

Etc etc etc.

The amount the banks have to put aside varies from country to country etc etc. Banks finance themselves through deposits, bond issuance, equity, quasi equity etc to give them the cash they need to make the money-go-round.

Thanks Doc, Gumby for your time. The part I'm still confused with are the above deposits, bond issues or raised equity. This still required someone having the money to loan to the bank. Following is a link to a video which I have kept in my files which also explains the above in more detail:
http://www.chrismartenson.com/crashcourse/chapter-7-money-creation

The above video explains how that $1000- can turn into $10,000- worth of loans. But that 10,000 is backed by something like $9000- worth of deposits!
When the accountant (from the video) deposits his $900 into the bank (lets say the same bank) the bank's bottom line now shows that it is owed just $100- The bank is owed after $10,000- of loans just $900-1000 really because it has taken $9000 in deposits.

Say Gumby is lucky enough to trip over a gold nugget in the bush or he just grew some potatoes, whatever, he has an asset with some value which simply just appeared. Gumby decides to sell it to that accountant for $900- so the accountant does not put the $900- into the bank. Gumby doesn't deposit the cash into the bank either and just sticks it under the bed to avoid any questions. The bank is owed just that $900-through the services of the accountant to a client. The bank is confident that the client was worth the loan and will be paid back.

Apart from the Fed printing money recently, money doesn't just appear. The depositors money has to exist. Regardless of how many times that deposit of $1000- is loaned out it still exists as that $1000- still.

So who owns the money? Doesn't appear to be the Australian public!

Just noticed some extra posts while I took forever to write the above post. Will read them now. thanks

Tysonboss1 · 18 April 2009

MR. said:
Apart from the Fed printing money recently, money doesn't just appear. The depositors money has to exist. Regardless of how many times that deposit of $1000- is loaned out it still exists as that $1000- still.

So who owns the money? Doesn't appear to be the Australian public!

In short the money belongs to the depositor, being being with term deposits and bonds and money sitting in accounts such as ING savings accounts.

But I guess if you trace in back far enough, all money is being rented from the various reserve banks of the world.

In Australias case since we have a negative savings rate, we rely on loaning money from other countries to keep us afloat.

maffu · 18 April 2009

In modern times, Collateralized debt obligation's are often the backing of nearly all mortgage loans. The bank does not actually have a depositor for the loan.

They make the loans bundle thousands together and sell them to rich Chinese, Arabs and Superannuation funds who want a return on investment. This actually takes the loan off the banks balance sheet, they simply earn a fee for giving out the loan and selling the loan to investors. CDO's are in part what caused the housing crisis in the USA. As the banks did not actually take any of the risk, they did not have the money to back up the loans because they were just on selling them, so they did not really care if the loans were paid back as they got their fee only.

Also, as mentioned due to the multiplier effect of money. The amount of money deposited in banks is actually much larger then the amount of notes and coins that exist. That is why confidence in the banking industry is so important. If we lose faith in banks and everyone trys to take their money out at once their will not be enough physical cash.

JimBob · 18 April 2009

Zeitgeist:addendum - http://www.zeitgeistmovie.com/
talks about fractional money supply, it might help explain a few concepts. Free download at the above website.

Tysonboss1 · 18 April 2009

maffu said:
In modern times, Collateralized debt obligation's are often the backing of nearly all mortgage loans. The bank does not actually have a depositor for the loan.

isn't the cdo then acting like a depositor,

disarray · 18 April 2009

nomore4s said:
Um, how does that answer the op's question? And what is the relevence to the op's question?

depends on if the op has done any research on his own. there's plenty of threads here and floating around the net about where money comes from, who owns it, governments printing pieces of paper at their leisure, the rise of the banking cartels, and who really wields the power. by virtue of the fact the op has even bothered to ask the question he has doubts about fiat currency, the banking system and the economic basis of our whole society.

gold is a hedge against the system. it doesn't need to be spelt out to enquiring minds.

doctorj · 18 April 2009

disarray said:
gold is a hedge against the system. it doesn't need to be spelt out to enquiring minds.

The best hedge against the system is being able to produce goods yourself of tradeable value (food, energy).

The average person doesn't have any good and doesn't have any use for it. Do you really think it'll be worth the equivalent of $1000/oz if the **** really hits the fan?

All this is off topic though - there is plenty of other places at ASF to discuss this.

disarray · 18 April 2009

doctorj said:
The best hedge against the system is being able to produce goods yourself of tradeable value (food, energy)

i agree. its a bit hard producing goods living in an apartment in a capital city though, city life is far more service based.

doctorj said:
Do you really think it'll be worth the equivalent of $1000/oz if the **** really hits the fan?

if it really hits the fan the $AU will be irrelevant

MR. · 19 April 2009

disarray said:
depends on if the op has done any research on his own. there's plenty of threads here and floating around the net about where money comes from, who owns it, governments printing pieces of paper at their leisure, the rise of the banking cartels, and who really wields the power. by virtue of the fact the op has even bothered to ask the question he has doubts about fiat currency, the banking system and the economic basis of our whole society.

Thanks Maffu, Nomore4's (yet to read through the ASF link), docj, disarray, Jim, Tyson

Disarray, often do too much research of my own and will admit not always on the right track. The reason I ask who owns the money is there always has to be someone suppling for the debts. These debts from my research always has depositors of some sort as Maffu/Tyson pointed out.

Many continue to laugh at low percentage fixed returns, depositors etc. I wondered why so many supply money at such low returns if everyone knows property and share returns are better. It's just interesting that all these debts have been supplied by people which must be thinking that their returns will be better that way.

Which made me then arrive at the question Who owns the money? Australia, UK, USA, didn't appear so.

China, Arabs and perhaps fixed term Super funds everywhere. OK...... all appear content with lowish returns.

Julia · 19 April 2009

MR. said:
Many continue to laugh at low percentage fixed returns, depositors etc. I wondered why so many supply money at such low returns if everyone knows property and share returns are better. It's just interesting that all these debts have been supplied by people which must be thinking that their returns will be better that way.

Well, as one depositor who turned to cash when the market was clearly going bad, it was - and still is - a case of protecting capital. And at beginning of 2008 the returns on cash were much better than they are now.

I'm still cautious about returning to shares, but don't regard cash as a long term option, and am gradually buying. I'd still rather see my capital not being eroded than worry too much about a short term reduction in cash flow from low interest rates.

MACCA350 · 19 April 2009

Julia said:
a case of protecting capital

That's about the only reason we're keeping the bulk of our cash in the bank. The pathetic interest rates are a slap in the face, now down to about 1/3 of what they were last year.........every interest rate drop feels like they are taking money from our pockets and giving it to those who owe the banks.

cheers

Kez180 · 20 April 2009

The APRA regulated amount that the bank is required to maintain is just the amount of cash they are required to keep on hand...

A bank finances loans in one of two ways; firstly, through deposits, 100 people put $1000 in the bank each and the bank lends another person $90,000.

The deposits are a liability on the banks balance sheet and the loans are assets... The important point here is that while the bank only keeps $10,000 handy, it still owes $100,000. If everyone comes at once to take their money out it is called a run on the bank. At the moment in Australia the RBA acts as a 'lender of last resort' and if a bank cannot get money to pay depositors, the RBA will lend it to the bank at the current cash rate... 3% At the moment...

The banks also use 'off balance sheet' financing. This is where they write a bunch of loans, group all of the similar ones together and on sell them. They then use the money from the sale of the mortgages to finance more lending...

Corporate notes are another form of off balance sheet finance, basically the bank just guarantees the payments for a fee...

maffu · 20 April 2009

Tysonboss1 said:
isn't the cdo then acting like a depositor,

It depends what you classify as a depositor. The investor is not actually depositing any money in the bank. They are simply buying the loan portfolio off the bank. The bank is just getting a fee for making the loans and bundling them together, and is just a middle man as such, a wholesale supplier of loans to investors. They were often not actually taking the deposits to fund the loans.

Who owns the money?

MR.

doctorj

Hatchet Moderator

disarray

GumbyLearner

Wysiwyg

Everyone wants money

Tysonboss1

nomore4s

Commonsense isn't that common

MR.

Tysonboss1

maffu

JimBob

Tysonboss1

disarray

doctorj

Hatchet Moderator

disarray

MR.

Julia

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MACCA350

Kez180

maffu

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