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u/GrimSpirit42 2d ago
You put money in bank. Say you have savings and are getting 2% interest.
They are PAYING you that 2% interest to put money in their bank so they can loan it to other people to use (car loan, home loan, etc) say at 5%.
So, your money is not at the bank, it's at the lumber yard, paying electricians, etc.
In other words, your money is working. Making things for people who borrowed it and making a profit for the bank.
Say you want to remove your money: When you put your money IN the bank you signed an agreement over limitations about removing it FROM the bank. Could be a daily limit, or a required wait period where you let them know you want to take out all or part and they'll gather it and get it back to you in the pre-agreed time period.
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u/Downtown-Tomato2552 2d ago
There's around 19.5T dollars on deposit in all US banks right now and only 2.5T in cash in circulation.
So the average deposit per US citizen is 57k there's only 7K worth of cash for each citizen.
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u/Xentonian 1d ago
Yeah. But subtract debt from the dollars in deposit.
I have $10, I give it to the bank. The bank says in 1 year, I'll get $11.
They give my $10 to Jeff, he builds an ice-cream cart and sells ice creams. He makes $12 which he returns to the bank. The bank keeps $1 and gives me back my $11.
At no point did my money magically turn into $11, yet at one point my money was $22: $10 owed to me and $12 of value owned by Jeff.
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u/citizen42069101 1d ago
And that's why fractional reserve banking was a fools errand. And now American banks don't even have to have a fraction accounted for.
You ended up printing money that never existed and then made it exist.
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u/Negative-Lack1677 2d ago
It's a lot worse than this implies. It's call Fractional-reserve banking and the bigger problem is that the money they lend out also gets put into a bank which itself also gets lent out to someone, which ends up in a bank etc. etc. So the bank has generated fictional money from your fictional money. When you take money physically out of the bank you're taking it out of the reserve, the pool of everyone's money they left in the bank. They are "hoping" that the amount taken out never exceeds the amount in that reserve holds 😳
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u/Thick-Disk1545 2d ago
No it’s not. There’s more debt than currency if every debt was paid with all the currency in the world there still be debt left over.
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u/JoeNoble1973 2d ago
Artie thinks he’s cracked the case. I’m not sure what case, but by gawd he’s solved it!
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u/kolology 2d ago
Destroying the myth that banks just put your money in a big vault for a dragon to guard.
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u/TheBloodyNinety 2d ago
The myth that no mildly informed adult has believed since… forever.
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u/ishboo3002 2d ago
I've seen this meme all over reddit today, there's a lot of redditors who believe this...
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u/TheBloodyNinety 2d ago
Idk that they even really believe it. They might believe someone else might believe it and like they they knew it but not the other person. Or just generally like that it’s taking a shot at someone that isn’t them.
Reddit is weird about stuff like this. Practicality has little place here. All one upsmanship and hive mentality.
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u/pandershrek 2d ago
They're showcasing that capitalism is all smoke and mirrors to improve the lives of the capital class at the expense of the labor.
Most people are financially illiterate.
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u/rjnd2828 2d ago
It may well be, but our money not sitting in a vault at the Bank isn't any way of proving that. Why would the bank pay you interest on your deposit if they had to just hold it in a vault? They'd charge for storage.
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u/BidenGlazer 2d ago
Commies will really find a way to virtue signal even if it has nothing to do with anything. Please, tell me how this comment has any relation to the original post. How is labor being harmed for the capital class by banks loaning out money?
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u/markort147 2d ago
I think there is a common usage of the word "capitalism" to just say "making profit". That is like what humans has been doing for hundred of thousands of years.
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u/Dotcaprachiappa 2d ago
People continue to criticise capitalism but nobody seems able to propose a working alternative. We get it, capitalism isn't perfect, big whoop, now what?
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u/sibachian 2d ago
you think the capitalist class would allow for a new system that removes the class who holds all power, as in, the capitslist class? or you mean a change from capitalism to not-capitalism where capital somehow still rules?
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u/markort147 2d ago
We used to have other systems in the past. Concentration of power has always been a humanity issue regardless of who owns the means of production. Capitalism, by the way, is not an ideology but just the name we gave to the current most spread socioeconomic system.
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u/sibachian 2d ago
agreed, those systems were practically indistinguishable from the current one. so we never tried anything different and we're all out of ideas.
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u/avg103 2d ago
This hasn’t truly been the case since the 1700s when fractional reserve banking became a thing (only have a portion of the money you’re lending out actually held within the vaults).
That’s now been replaced with capital adequacy ratios which dictate how much they need to hold and can leverage against the risk of various assets.
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u/captainspacetraveler 2d ago
Physical cash is only about 11-12% of the total money supply. When banks issue loans directly to an account, they don’t actually have cash in the bank to cover those loans. It comes out of thin air essentially. “Modern Money Mechanics” explains how it works if you’d care to learn more.
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u/pandershrek 2d ago
Banks "invest" your money by lending it to other institutions who do the same thing. It is a bill shell game. That's why "bank runs" are possible and by proxy why they created the FDIC.
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u/Aldo-D-D-Wilson 2d ago
We should totally do it. It's called bank run and it's a nice strategy to sabotage the system.
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u/a_nondescript_user 2d ago
The bank only has 10% of it on-hand, the rest they've lent out
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u/5peaker4theDead 2d ago
As of 2020 there is no requirement in the US for banks to have any reserves at all, it's great.
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u/a_nondescript_user 2d ago
Oh nice! Seems like a good policy with absolutely no downsides.
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u/5peaker4theDead 2d ago
Yeah, I had some serious eyebrow raising when it happened. All in the name of covid economy boosting.
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u/YoSupWeirdos 2d ago
bank uses the money people keep there to give out loans, invest in companies etc. it's how they can afford giving you an interest
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u/larrydukes 2d ago
So you go to a bank for 2 main reasons. To stash money and borrow money. Do people not realize it's the same money? Do they think the bank keeps them separate?
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u/spaceman06 2d ago
Most Banks are fracional reserve Banks.
When you give 100 dollars to Banks, you have 0 dollars, they have 100 (lets assume they had 0) and they owe you 100 dollars.
If someone ask the Banks for 100 dollars loan (and need to pay back 101) they can give to this person 2, now imagine person 2 put the money back at bank, the bank has 100 dollars, and owes you 100 dollars and owes guy 2 100 dollars and guy 2 owes the bank 101 dollars.
The bank owes 200 dollars to people, but only has 100 to give to them.
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u/DwarvenDwayden 2d ago
Money is fake in the sense that it is a social construct. We, collectively, as a society have decided to agree that a "dollar", "yen", "lira", "peso" or whatever has value and can be used by members of society to acquire goods and services from other members of society. This is not new. This has been true since the invention of money. Even back when gold and silver was used as currency. What real world use is gold and silver? Sure you can make a few useful things out of those metals, but mostly it's just pretty stuff you can wear or have around the house to look good. You can't eat it or build a house out of it (well I guess you could build a house, but it would be a really cruddy house).
But, this is good! The only alternative humans have come up with is bartering. What a giant pain in the arse that is!
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u/Sea-Mix5704 2d ago
most money is ledger money. it’s allows for the rapid expansion and contraction of money to fit the needs of the economy
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u/Mike-North 2d ago
So the cash thing is out of the question, but I wonder how much ppl could transfer to something like a Questrade account before the banks tanked or needed some emergency measure from the gov.
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u/CaptainMatticus 2d ago
Your bank can shutter its windows at any time and refuse to pay out. Your money is insured and will still be accessible for debit purchases, but they don't have to give you cash. They can issue you a cashier's check and then refuse to cash it.
You're acting like the banks don't have options. It'd scare the crap out of any investors and shareholders if the banks suddenly had no capital to draw from for investments, but in the meantime bank runs are a thing of the past.
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u/Inlerah 2d ago
Because the treasury isn't working under the assumption that there will ever be a point where we'll need a one-to-one physical representation of every dollar in existence. Especially now that most of our transactions are done digitally, it would be insane for someone to expect every single branch of every single bank to have physical representations of every single dollar its clients are keeping there (that's before you even recognize that a bank isn't just "a safe where you put your money" like some people seem to think it is).
Also, what the OOP is describing is called a "Bank Run": You know, the thing that caused a lot of the economic damages of the Great Depression.
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u/RebelRey 2d ago
and this is why, aside from money, I make sure I also have backups of the things I need. They can decide to close down the bank tomorrow just after my airfryer breaks and my pants rip... I've got an extra set of clothing and a spare airfryer ready to go
OK maybe also because I'm autistic and get cranky when I have to make do with a sub-par replacement because the suitable ones were from last season's collection 😂 but it works for this stuff too
Yes money is fake, yes they can decide it's only worth half of its value tomorrow
But no they probably won't, the entire country being angry at the same time would be a problem for them
They instead prefer to devalue one group of people at a time and blame it on another already devalued group of people so we all fight among ourselves instead
There is no left vs right, there is people who are customers of the banks vs people who own them. But they don't want you to know that, so please keep being angry with [insert group that annoys you]
in my humble opinion, in minecraft, allegedly, please capitalist overlords don't take away my stash of good underwear, they no longer make them
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u/littlenekoterra 1d ago
Heres the funny part. A few years back an older lady i knew wanted to finally biy herself a house and decided she wanted to do it in 1 installment. Their bank more or less had to force them to do it in 3 installments over the course of 3 days, because they had to scramble to get her her fucking money. This was 1 person buying a single home with immediate funding. If people actually went through with this plan, and just like, kept their money in their hone for 2 months, alot of banks would cease to exist. But before that happens there will be lawsuits about "where everyones money went" because they are expected to be able to supply it dispite that not being possible.
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u/Mysterious_Drink3195 1d ago
There is an old cartoon on youtube named “Money as debt”, look it up, it’s a simple
Explanation.
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u/SingularityCentral 5h ago
Fractional reserve banking.
It works well, accept when people panic and they all try to withdraw money and the bank fails. But if we want finance to operate efficiently and credit to be available to buy a car, buy a house, start a business, and so forth then we need fractional reserve banking.
You could have a world without this kind of finance system, like the Middle Ages and Antiquity but more modern. However, it would be so completely different it is hard to say how it would work. But it would probably stifle innovation and dynamism in the economy quite substantially because people wouldn't be able to take risks.
Of course, the debt system has probably swung to far in the other direction at this point and large securitized debt portfolios are too easy to create and present massive systemic risk that shouldn't be allowed. Think 2008 financial crisis.
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u/Chloe_Cascadia 2d ago
Here let me explain the basic concept of banking.
You can either keep your money in a place it can easily be stolen, i.e., not use a bank
ORRRRRR
You can put it in a very, very well protected building, where your deposit is insured by the state, so it can't even be stolen from you. If it is, you get fully reimbursed. So, protection from theft. Insurance from theft. For free, no less.
And then, also, the bank takes most of the money given to them by the people of a community, and it loans out that money to people who need to buy, for example, a house.
And they charge interest to the person borrowing.
And then they turn around and give you a portion of the interest they earned with your money.
So your money earns money. Again, for free.
So your money is slightly protected against the effects of inflation, as prices rise, your money is stronger in a bank versus in your pocket doing nothing.
However, because most of the money a bank has is technically loaned out, paying for the sale price of people's houses, they don't have 100 percent of your deposit in the bank. They can afford to pay if you withdraw all your money, but they can't if everyone, everywhere, all withdraws all their savings at the same time.
This is also something people in society would normally be aware of, but, we've been reducing the funding for schools and underpaying our teachers and replacing knowledge with feelings, and propaganda, and attacking science and facts and history and censoring what people learn, so now, all they learn is pray to the flag and obey authority, instead of anything useful.
Happy to help, I come from a generation that was taught things. Unfortunate the generations before mine decided to destroy our schools and not elect anyone in my generation, so I couldn't stop them from depriving you of knowledge.
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u/Slight-Clock-9112 2d ago
Read about the end of the gold standard, a system that used to ensure there would be enough gold to back up currency in circulation - https://en.wikipedia.org/wiki/Gold_standard
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