The downsides of big banks

Austin Clark7 said:Wow, you really think you simplified it, don't you? Look, the Federal Reserve isn't something you can just wrap up in a single social media post... honestly. Maybe try hitting up a local library sometime—they’ve got stacks of textbooks on how the Federal Reserve actually functions, most of them running pretty heavy at 400 to 700 pages... just grab one, sit down, and actually read it. It might help clear things up for you.

darkmarlin92 said:Can someone please walk me through how interest actually works? Is it even "real" money—like, actual physical cash that exists, rather than just something conjured out of thin air?

Let’s say there’s just one bank left on Earth, and they have a deposit of $33. They offer you a loan for $6.75. At that exact moment, if you count all the cash people are holding, the total amount is $33. So, everything combined equals $67.
If you put your money in a CD, let's say the rate is 4% a year, but if you take out a loan, the rate jumps to 10%. If Person A takes a loan for $6.75 and has to pay it back over, say, 2 years... how is it even possible for there to be $68 in the world once that debt is settled?
How can money just be created out of nothing but debt?? 😲

Nicholas Turner said:Here is the backstory on how this all began http://en.wikipedia.org/wiki/Fractional-reserve_banking

Is this even legal? Feels like the biggest, nastiest scam on the planet to me.

Kate Foster12 said:First off, the minimum reserve a bank needs to operate in the US is $40 million.

Second, you need to understand the basics of deposit and credit multiplication...

darkmarlin92 said:Look, I'm not asking about some space law or random theoretical nonsense, I'm asking how money is just conjured out of thin air?
I'm kinda clueless here and don't get how anything can be made from nothing.

Austin Clark7 said:Why on earth do you think economics is actually simpler than that? Honestly, that’s the whole issue right there—everyone seems to think economics is this self-explanatory, straightforward, totally basic thing. It's not.
Just sit down, pick up a book, read some peer-reviewed journals... even that Wikipedia entry is actually pretty solid if you give it a chance. It might help things click for you.

darkmarlin92 said:Look, I'm not asking about some space law or random theoretical nonsense, I'm asking how money is just conjured out of thin air?
I'm kinda clueless here and don't get how anything can be made from nothing.

Amanda Allen4 said:It’s possible—because modern money, or rather our national currencies, are nothing more than symbols. As long as people collectively agree to believe in a symbol, it exists.

Arthur Booth96 said:Maybe give that documentary *Money as Debt* a watch if you can't be bothered to slog through actual monetary economics textbooks instead.

edit: And just to be clear, it isn't some disgusting scam; it’s just that today's paper money is fiat currency, assuming you've heard the term. Basically, it all relies on trusting that random scrap of paper and having faith in the CB.

darkmarlin92 said:What kind of trust? What are you even talking about?

darkmarlin92 said:I feel like most people have no clue how money actually gets made. They think the government just prints bills and decides how much cash is out there. I mean, they play a part, sure, but isn't it really the banks? They pump out loans and rake in interest, dropping billions into the system that just end up being cycled back through more loans. Honestly, if every single debt was paid off tomorrow, money wouldn't even exist anymore. Or maybe I'm just trippin'.

Austin Clark7 said:You’re looking at this all wrong. Think about it like a carpenter who picks up some raw lumber for $33—through sheer skill, sweat, and time, he turns that wood into high-end doors and sells them for $667. It’s the exact same deal for a bank; they take money as input and use various investments—loans being just one tiny slice of the pie—to grow that capital into something much larger.

By the way, how did you even land on those $68 numbers in the first place? If there were actually a fixed amount of money in the world—which, by the way, is a completely flawed assumption—then if Steve wanted to pay back a loan with interest, he’d have to earn that extra cash somewhere else. So, let's say he sells a massive batch of doors... that just moves his capital to a third party, leaving the total sum at $67
But honestly, your logic is way too oversimplified... and if you keep thinking like that, you're never going to wrap your head around how the money market actually works.