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Thread: Banks Do Not Work

  1. #1

    Default Banks Do Not Work

    We all know commercial banks receive a deposit of say 100 USD. Under the US, according to the Federal Reserve, 10% must be placed in reserve, thus 90 USD can be loaned out in a form of credit. We can still access our deposits, so there is actually 190 USD in existence. If there is less reserve cash than the requested withdraw then the bank shuts down, and that's called run on the bank.

    Why do banks not work? Well if I ask for a loan of $100 with 10% interest over 5 years. Coming to $50 USD interest. The problem is, this interest is not in existence. Because if say the money supply is a pie, the interest may be another slice of pie with the full pie. This extra slice is not in existence and must be baked or in our case "print". Thus causing inflation.

    Under this system, there is more debt than actual money. If we pay it off with the money now, then there will be no money. We will become a barter economy. Or we can print off this debt which will make the dollar completely worthless. Because (look at paragraph #1) every dollar deposited will become more than NINE dollars. If I ask for a loan for 100$, 90$ then can be loaned out and deposited, 81$ then can be loaned out and deposited.

    This problem is present in every nation. The source of our global economic problems. My question is, how would you solve it?

  2. #2


    I've absolutely no idea how to solve it or what the best banking system would be... but...

    You're talking about the way that there is more printed money available than there are reserves to cash in, right? If so, this "gold reserve system" can work because it assumes that $1 now is worth more than $1 later -- you could invest $1 in a project that nets you $2 tomorrow.

    The "gold reserve system" encourages growth by making money more-readily available to entrepreneurs. So in a "boom time", a nation will flourish far better than it could have if we adhered to the gold standard.

    The problem comes when the ratio between money and reserve (i.e. gold) becomes higher that the amount of work/profit/growth being achieved by the workforce. I guess we overstepped that way too much.

    Part of the reason that growth has been so high is because of the baby-boomer generation. Now they're retiring, the proportion of workers to pensioners is fallen off quite rapidly, and growth has been slowing.

    Another problem is the increasing range of complex financial instruments which make it impossible to adequately assess risk.

    Then there are psychological tendencies which cause human investors to invest irrationally -- by chasing losses, for example.

    If there was less arbitrary decision-making involved in financial systems, a way to accurately predict growth, and a mechanism to ensure that the "gold reserve system" would not print more money than there was growth to sustain it, then maybe things would be better...

    Disclaimer: I haven't studied economics since school and don't follow the news or politics, and so I almost certainly have no idea what I'm talking about!

  3. #3


    Quote Originally Posted by Drakenish View Post
    This problem is present in every nation. The source of our global economic problems. My question is, how would you solve it?
    'solving' the problems with contemporary 'banking' is tied in with the socio-economic-wide status.
    along with many other aspects of our lives, we've forgotten the basics, the fundamental prinicples, and that's always a big mistake. like, as per your example of a bank holding a reserve (a physical bank of produced wealth), does holding back a paltry 10% constitute a banked up reserve of wealth? to me, it doesn't (similarly, i wouldn't call a nation 'white' if 90% of it's population were black) and i could rant on about how it constitutes fraudulent trading and how they ought to be punished, yet the authorities allow their crimes to contintue, but i shan't

    of course, the problems also tie in with how we've developed technologically and incorporated such into our lives. the effect most obvious, to us, is in our use of cards for transactions (meaning the banks always hold our wealth - and do with it as they please), the 24/7 nature of banking (but only as it suits the banks) and they ways in which the banks cling onto analogue methods, like waiting periods, to our annoyance (and their benefit).
    and that cashless system is also fundamental to global financing, which results in rapid technological development of consumer goods, for which we go and get loans [from the banks] to buy and sign up to contracts to use.
    breaking such a cycle would require a massive change in how we live our lives. like, Apple wouldn't be able to curn out a 'new' (aka, unfinished/defective) iPhone every year nor Microsoft it's perpetual stream of junk; they would only be able to use money they've actually made from the business, not borrowed. while that could be taken as a negative, the positive is that their products would be of a better quality and durability.
    and you've probably figured out, now, that any change would have to be a global affair, lest any single nation be dominated by another. and the sad whys and wherefores lie in the origins of modern banking and finance: warfare (and the technological means for it).

    so, perhaps we're talking about fixing something that can't be fixed? perhaps we need a new way, and a new way of thinking?

  4. #4


    I was thinking of socializing Banks. Where to government loans out 0% interest loans. This would solve the problem. And the government will print money indexed to population. Ie 2% population growth = 2% monetary growth. For there not to be deflation. I wonder what the effect will be if we "nullify" all debt?

  5. #5


    Quote Originally Posted by Drakenish View Post
    My question is, how would you solve it?
    The only way is to return the entire world to a barter system, where we don't use actual printed money or 'plastic' (let's not even go there), but instead we 'barter' for goods and services.

    For instance person #1 is a farmer who has a milking cow and some laying hens, but he doesn't have a plough or any seeds for corn. Person #2 has a plough, so he might offer to plough the farmer's field in exchange for fresh milk and eggs. Person #3 has seed for corn but does not need milk or eggs, so instead person #3 gives the farmer corn seed in exchange for #2 ploughing his field and #2 gets more milk & eggs. :-)

    I think this is the only system that would work and would remove any necessity for banks.

  6. #6


    Quote Originally Posted by Drakenish View Post
    I wonder what the effect will be if we "nullify" all debt?
    I guess no one would ever lend anyone anything ever again...

  7. #7


    There seems to me a major flaw in this presentation and that is the understanding of what interest is. Interest is the money you pay for the privilege of being loaned more money than you have at the time that you need money.
    The money to pay the interest is made by you through the work you do. If you want a loan for 100 dollars its because you want something NOW instead of waiting and saving up for it and you have to pay for that NOW need of money.
    This is how the bank makes its money and can pay its employees and build new banks with better systems. There is no such thing as a free lunch and if you want someone to load you money than you can't expect them to do it out of the some immoral definition of "the kindness of their heart" Especially with how many people default on the obligations they swear an oath to pay. No this is not to say the banks are noble or just in anyway, I feel the tactics used by mortgage companies in the last 15 years have been down right evil and set up many well meaning but fairly stupid people for failure. Being stupid about financial decisions does not make a person worth any less, it just means that the rest of us...meaning family, financial advisors and loan officers should have an ethical obligation to explain in clear common language, the nature of the loan people are about to take on.

  8. #8


    Quote Originally Posted by Drakenish View Post
    I wonder what the effect will be if we "nullify" all debt?
    I couldn't be a loan-shark if that happened. So I wouldn't like that, and I bet nobody really would, especially people who are owed thousand or millions of dollars.

  9. #9

  10. #10


    Well you are 17 and probably haven't had to many major bank loans and the OP is Russian and their Banking system is a wee bit different than ours, so ya it will be a bit confusing.

    Figure, The idea is that Banks have to only hold 10% of the money deposited in them as real or actually physical cash. SO if your bank holds 1,000,000 wort of savings it only has to have 100,000 on hand. The Op is concerned that the interest paid is will continue to decrease the amount of real currency actually in the bank structure because he feels interest is not "real money" and is simply made up. Truth is that interest is a fee you offer to pay a bank for being allowed to use more money than you have at the moment that you want something you cannot afford without a loan. Like a car, when you buy a car you pay 25K plus interest which in our current market means you end up paying about 32K over the 5 years of the loan. If you don't want to pay that fee (interest) than save up 25K, if you can, and buy the car out right. Make more sense now?

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