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Do you know how money is created?

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    #62
    B.A._Baracus
    Registered Users Posts: 11,189 ✭✭✭✭B.A._Baracus


    To be honest I can't wrap my head around how money is created (not physically of course as the op said :p )

    But whats it backed up by?
    Because I heard that if every single person in the country who has money in the back was to withdraw every euro tomorrow. At a point, there would be no more money to give :confused:
    pqdvdplayer wrote: »
    You don't learn about the way in which wealth is created out of thin air in school. They say in the textbooks that all money is backed by gold, when this is certainly not the case.

    I was told that too. Heard various times over the years it's BS. The actual creation of money be weird to me :(


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    #63
    Karl Stein
    Closed Accounts Posts: 7,689 ✭✭✭Karl Stein


    Confidence in the system is what allows money to be created.

    A good question is: what is it that makes everyone so confident that bits of paper have such value?

    Consider this; a copper one cent is intrinsically worth more than any €100 note because it is made of a useful metal.


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    #64
    Iwasfrozen
    Registered Users Posts: 16,250 ✭✭✭✭Iwasfrozen


    Nino Brown wrote: »
    But then the money they loan out is deposited in another bank, who use that as reserves, and a small amount of reserves becomes a massive amount of debt, which is mathematically impossible to repay. It's a ponzi scheme, and they only ever end one way
    It's not impossible for individuals to repay their debt.


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    #65
    Sir Arthur Daley
    Closed Accounts Posts: 6,720 ✭✭✭Sir Arthur Daley


    pqdvdplayer wrote: »
    Saying that, I've provided ye with solid proof, yet some of you still ignore it, so you could very well be thick

    When are you going back to school?


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    #66
    catallus
    Closed Accounts Posts: 6,106 ✭✭✭catallus




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    #67
    Knasher
    Registered Users Posts: 2,370 ✭✭✭Knasher


    pqdvdplayer wrote: »
    You don't learn about the way in which wealth is created out of thin air in school. They say in the textbooks that all money is backed by gold, when this is certainly not the case.

    You need to get newer textbooks then, no country uses the gold standard any more. Again something covered in secondary school.


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    #68
    Seaneh
    Banned (with Prison Access) Posts: 18,300 ✭✭✭✭Seaneh


    Iwasfrozen wrote: »
    It's not impossible for individuals to repay their debt.

    For individuals, no, for everyone, yes.

    There is more debt than there is currency.


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    #69
    Amirani
    Moderators, Society & Culture Moderators Posts: 12,523 Mod ✭✭✭✭Amirani


    B.A._Baracus wrote: »
    To be honest I can't wrap my head around how money is created (not physically of course as the op said :p )

    But whats it backed up by?
    Because I heard that if every single person in the country who has money in the back was to withdraw every euro tomorrow. At a point, there would be no more money to give :confused:

    Essentially nothing. The Government gives a guarantee on all deposits up to 100k, neither them nor the banks would be able to pay out though if everyone decided to withdraw all their cash tomorrow.


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    #70
    Nino Brown
    Closed Accounts Posts: 1,507 ✭✭✭Nino Brown


    Iwasfrozen wrote: »
    It's not impossible for individuals to repay their debt.

    Individuals can repay their debt, but as a whole, if a bank loans out a sum of money which never existed in the first place, and charges interest on that money, the only way the interest can be repaid is if that individual, or another individual borrows the interest into existence too.


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    #71
    Seaneh
    Banned (with Prison Access) Posts: 18,300 ✭✭✭✭Seaneh


    Knasher wrote: »
    You need to get newer textbooks then, no country uses the gold standard any more. Again something covered in secondary school.

    But in secondary school they teach that banks loan deposits and make money on the interest.

    As explained already that's not true. They create money when they make a loan.


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    #72
    pqdvdplayer
    Registered Users Posts: 158 ✭✭pqdvdplayer


    Karl Stein wrote: »
    A good question is: what is it that makes everyone so confident that bits of paper have such value?

    The governments law is what makes everyone so confident. They decided to allow banks to create money out of thin air and call it "legal tender"


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    #73
    Amirani
    Moderators, Society & Culture Moderators Posts: 12,523 Mod ✭✭✭✭Amirani


    Seaneh wrote: »
    But in secondary school they teach that banks loan deposits and make money on the interest.

    As explained already that's not true. They create money when they make a loan.

    Secondary school economics certainly teaches the latter, I'm not sure about other subjects.


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    #74
    Iwasfrozen
    Registered Users Posts: 16,250 ✭✭✭✭Iwasfrozen


    Seaneh wrote: »
    For individuals, no, for everyone, yes.

    There is more debt than there is currency.
    That's my point. Whether individual companies (who take on most of the debt) can pay off their debt is irrelevant to the economy as a whole because the gap in the market will be filled by either an existing company that can pay it's debt or a new company.


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    #75
    mardybumbum
    Registered Users Posts: 1,939 ✭✭✭mardybumbum


    Has OP just watched Zeitgeist for the first time?


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    #76
    Nino Brown
    Closed Accounts Posts: 1,507 ✭✭✭Nino Brown


    Iwasfrozen wrote: »
    That's my point. Whether individual companies (who take on most of the debt) can pay off their debt is irrelevant to the economy as a whole because the gap in the market will be filled by either an existing company that can pay it's debt or a new company.

    What you just described is a ponzi scheme.


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    #77
    Noccy_Mondy
    Registered Users Posts: 6,845 ✭✭✭Noccy_Mondy


    Grow....on......trees? :pac:


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    #78
    Iwasfrozen
    Registered Users Posts: 16,250 ✭✭✭✭Iwasfrozen


    Nino Brown wrote: »
    Individuals can repay their debt, but as a whole, if a bank loans out a sum of money which never existed in the first place, and charges interest on that money, the only way the interest can be repaid is if that individual, or another individual borrows the interest into existence too.
    Nope. Debt can be paid off though savings.


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    #79
    Seaneh
    Banned (with Prison Access) Posts: 18,300 ✭✭✭✭Seaneh


    Iwasfrozen wrote: »
    Nope. Debt can be paid off though savings.

    nope.


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    #80
    Iwasfrozen
    Registered Users Posts: 16,250 ✭✭✭✭Iwasfrozen


    Nino Brown wrote: »
    What you just described is a ponzi scheme.
    That's not a ponzi scheme.
    Seaneh wrote: »
    nope.
    Yep.


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    #81
    pqdvdplayer
    Registered Users Posts: 158 ✭✭pqdvdplayer


    This is an easy way to see the flaw. Let's say that no money existed. The bank then decided to lend out 1 euro to one person. The person then had to pay back this 1 euro plus interest. This is impossible, right? Because only 1 euro existed in the first place. And even that one euro was created artificially by the banks. Therefore, it is easily proven by this that as long as our current system is in place, we will ALWAYS be in debt to the banks. It is physically impossible for us to not owe money to the banks. Even if we used all the money in existence to pay off all our national debts, we would still be in debt. Its stupid, yet all the governments continue to try to achieve an impossible thing, without ever questioning the fundamental flaw of the system.


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    #82
    PizzamanIRL
    Registered Users Posts: 5,148 ✭✭✭PizzamanIRL


    Yeah well there's nothing we can do about it to change it so stop stressing about it.


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    #83
    pqdvdplayer
    Registered Users Posts: 158 ✭✭pqdvdplayer


    Iwasfrozen wrote: »
    Nope. Debt can be paid off though savings.

    Wow, how can you save money that never existed.


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    #84
    Nino Brown
    Closed Accounts Posts: 1,507 ✭✭✭Nino Brown


    Iwasfrozen wrote: »
    Nope. Debt can be paid off though savings.

    I'm not sure you're getting this, there is more debt than there is money in existence, it cannot be paid off, ever.
    Lets pretend the bank has E100 in reserve, they loan out E1000 and charge 10% interest, now somebody owes E1100, they buy a car and the old owner puts that E1000 in his bank, now they have reserves, and they loan out E900, and the cycle continues.
    That original E100 has now become thousands in debt which can never be repaid, because the interest owed never existed.
    So the only way to keep the cycle going is for more debt to be created to pay the interest so they system doesn't collapse. Which is why in 2008 when people stopped borrowing, governments had to fill the gap, so now we have the sovereign debt bubble.


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    #85
    pqdvdplayer
    Registered Users Posts: 158 ✭✭pqdvdplayer


    PizzamanIRL wrote: »
    Yeah well there's nothing we can do about it to change it so stop stressing about it.

    Yes there is. We can inform more people about this because most people don't even have a clue that they are being robbed. You'll find that once the majority of a population are informed, justice will soon follow.


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    #86
    Karl Stein
    Closed Accounts Posts: 7,689 ✭✭✭Karl Stein


    pqdvdplayer wrote: »
    The governments law is what makes everyone so confident.

    Laws are just words and governments are just people. It's against the words law to smoke weed and drink under age yet most people who want to do those things ignore the words law.

    If there's a famine you can't eat money. Forget worthless money, you can't eat gold. You could trade it if there was someone with more food than you but if everyone was hungry the gold would be worth nothing other than its value as a metal.


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    #87
    Amirani
    Moderators, Society & Culture Moderators Posts: 12,523 Mod ✭✭✭✭Amirani


    pqdvdplayer wrote: »
    Therefore, it is easily proven by this that as long as our current system is in place, we will ALWAYS be in debt to the banks. It is physically impossible for us to not owe money to the banks. Even if we used all the money in existence to pay off all our national debts, we would still be in debt.

    I agree with you. I'm not sure why it's a problem though?


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    #88
    pqdvdplayer
    Registered Users Posts: 158 ✭✭pqdvdplayer


    Karl Stein wrote: »
    Laws are just words. It's against the words law to smoke weed and drink under age yet most people who want to do those thing ignore the words law.

    If there's a famine you can't eat money. Forget worthless money, you can't eat gold. You could trade it if there was someone with more food than you but if everyone was hungry the gold would be worth nothing other than its value as a metal.

    Why are you trying to argue this? Whatever, you can think all you like that money can be worthless.. but in reality you DO want to earn money, and so does everyone, therefore the law is working.


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    #89
    131spanner
    Closed Accounts Posts: 1,305 ✭✭✭131spanner


    pqdvdplayer wrote: »
    You'll find that once the majority of a population are informed, justice will soon follow.

    Like the whole catching Kony thing.


















    Ah wait a second...


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    #90
    pqdvdplayer
    Registered Users Posts: 158 ✭✭pqdvdplayer


    Diego Simeone wrote: »
    I agree with you. I'm not sure why it's a problem though?

    Because it will keep causing economic collapses, with each one being worse than the previous.


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    #91
    Knasher
    Registered Users Posts: 2,370 ✭✭✭Knasher


    Seaneh wrote: »
    But in secondary school they teach that banks loan deposits and make money on the interest.

    As explained already that's not true. They create money when they make a loan.

    It would be more accurate to say that they create capital when they make a loan, as the amount of money in existence remains the same. And the banks do make their profits off the interest. However it is true that the amount of capital they create exceeds the amount that people deposit with them - but this is absolutely something I learning in secondary school.


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