Money what it is and where it comes from

[simon12]

I have been trying to understand this for a while and think I am partially there so here goes. For this thread I will refer to real money and bank money the reasons should be apparent. Around 3% of the £s in circulation are real money. When you borrow money from a bank in any way the money you borrow is bank money and all bank accounts contain bank money not real money, bank money is essentially an IOU from the bank, this is because banks do not loan out money that is deposited by savers but give out bank money.
ie. person A builds a house and sells it to person B, person B gets a mortgage for £300,000 from bank 1. Bank 1 then credits person A's account with bank 2 £300,000 that didn't exist before and person B owes bank 1 300,000+interest. In this case the banks as a whole now now owe person A £300,000 and are owed £300,000 by person B and £300,000 are now available to person A to spend that didn't exist before.
This is because the bank of England allows banks to lend more money than they have deposits this used to be on a fixed ratio but is now done by separate deals with each bank. So note how in example above bank 2 now has more money deposited than it did before so can now lend more in future based on a deposit of whats already bank money not real money so the banking industry as a whole the more they lend the more they are allowed to lend as long as the money stays in the banking industry. Only the bank of England can regulate the total money supply and the fact that lending money needs to be profitable for the banks.
This system basically works on the principle that the public are never going to withdraw all there money from the banking system at once, if they did it would cause a bank run like what happened in Greece. The difference being if it happened in the UK the bank of England could just print all the money needed to meet the requirements making all this bank money into real money while Greece being in the Euro can't.
What I don't yet know is if a bank has say 10 billion in deposits and say 100 billion it has loaned I assume the bank pays the base rate interest on 100 billion and gets it on 10 but I am not sure and also have no idea if this is the case what happens to the interest they pay.
Does this make sense and does anyone care?

 

[simon12]

Just realised I missed a point that in the example when person B repays the mortgage then the money is destroyed again but by that time more money has been re loaned based on it and then re loaned again and again so many times it keeps going up. By if no new loans happened at all eventually thinks would go back and only real money would exist.

 

[Godsdog]

Just realised I missed a point that in the example when person B repays the mortgage then the money is destroyed again but by that time more money has been re loaned based on it and then re loaned again and again so many times it keeps going up. By if no new loans happened at all eventually thinks would go back and only real money would exist.

Far too technical for me,all I know is I'm ok

 

[Clint]

Yeah basically it only works if the majority of people are in debt.
Then they say such and such company has "lost " 100 million quid...where? Down the back of the sofa?
Most of it is legalised theft.

 

[Covrich]

Everyone lending money with interest.. there is probably more debt with interest than money exists to repay it..

lets say I lend you all the money in the world with 5% interest.. how can you possibly repay me with that 5%

 

[Clint]

It's like that mortgage lending fiasco that caused the crash...they lend people money that doesn't exist to people who have no chance of repaying should the interest rate go up. They put the rate up then repossess property that does exist...then sell it to someone else....

 

[pms67]

I have been trying to understand this for a while and think I am partially there so here goes. For this thread I will refer to real money and bank money the reasons should be apparent. Around 3% of the £s in circulation are real money. When you borrow money from a bank in any way the money you borrow is bank money and all bank accounts contain bank money not real money, bank money is essentially an IOU from the bank, this is because banks do not loan out money that is deposited by savers but give out bank money.
ie. person A builds a house and sells it to person B, person B gets a mortgage for £300,000 from bank 1. Bank 1 then credits person A's account with bank 2 £300,000 that didn't exist before and person B owes bank 1 300,000+interest. In this case the banks as a whole now now owe person A £300,000 and are owed £300,000 by person B and £300,000 are now available to person A to spend that didn't exist before.
This is because the bank of England allows banks to lend more money than they have deposits this used to be on a fixed ratio but is now done by separate deals with each bank. So note how in example above bank 2 now has more money deposited than it did before so can now lend more in future based on a deposit of whats already bank money not real money so the banking industry as a whole the more they lend the more they are allowed to lend as long as the money stays in the banking industry. Only the bank of England can regulate the total money supply and the fact that lending money needs to be profitable for the banks.
This system basically works on the principle that the public are never going to withdraw all there money from the banking system at once, if they did it would cause a bank run like what happened in Greece. The difference being if it happened in the UK the bank of England could just print all the money needed to meet the requirements making all this bank money into real money while Greece being in the Euro can't.
What I don't yet know is if a bank has say 10 billion in deposits and say 100 billion it has loaned I assume the bank pays the base rate interest on 100 billion and gets it on 10 but I am not sure and also have no idea if this is the case what happens to the interest they pay.
Does this make sense and does anyone care?

All that matters is your airlock is bubbling

 

[MagnusTS]

"What is money?" is a brilliant and mind-blowing question.

 

[Chippy_Tea]

"What is money?"question.

Something i haven't had much of for more years than i care to remember. :-(

.

 

[MyQul]

Far too technical for me,all I know is I'm ok

Me too, Cuz I haven't got any and never will :mrgreen:

 

[dps51]

well I don't know where it come from these days
but swmbo know were it goes so she keep telling me
but what money for you can not take it with you
so just spend it don't

 

[MyQul]

I have been trying to understand this for a while and think I am partially there so here goes. For this thread I will refer to real money and bank money the reasons should be apparent. Around 3% of the �£s in circulation are real money. When you borrow money from a bank in any way the money you borrow is bank money and all bank accounts contain bank money not real money, bank money is essentially an IOU from the bank, this is because banks do not loan out money that is deposited by savers but give out bank money.
ie. person A builds a house and sells it to person B, person B gets a mortgage for �£300,000 from bank 1. Bank 1 then credits person A's account with bank 2 �£300,000 that didn't exist before and person B owes bank 1 300,000+interest. In this case the banks as a whole now now owe person A �£300,000 and are owed �£300,000 by person B and �£300,000 are now available to person A to spend that didn't exist before.
This is because the bank of England allows banks to lend more money than they have deposits this used to be on a fixed ratio but is now done by separate deals with each bank. So note how in example above bank 2 now has more money deposited than it did before so can now lend more in future based on a deposit of whats already bank money not real money so the banking industry as a whole the more they lend the more they are allowed to lend as long as the money stays in the banking industry. Only the bank of England can regulate the total money supply and the fact that lending money needs to be profitable for the banks.
This system basically works on the principle that the public are never going to withdraw all there money from the banking system at once, if they did it would cause a bank run like what happened in Greece. The difference being if it happened in the UK the bank of England could just print all the money needed to meet the requirements making all this bank money into real money while Greece being in the Euro can't.
What I don't yet know is if a bank has say 10 billion in deposits and say 100 billion it has loaned I assume the bank pays the base rate interest on 100 billion and gets it on 10 but I am not sure and also have no idea if this is the case what happens to the interest they pay.
Does this make sense and does anyone care?

I dont know a huge amount about it but is this is what is known as fiat finance?

 

[simon12]

I dont know a huge amount about it but is this is what is known as fiat finance?

I don't know but if banks could all lend a fixed ratio to there deposits it would be called Fractional-reserve banking see https://en.wikipedia.org/wiki/Fractional-reserve_banking

 

[dad_of_jon]

I have been trying to understand this for a while and think I am partially there so here goes. For this thread I will refer to real money and bank money the reasons should be apparent. Around 3% of the ��£s in circulation are real money. When you borrow money from a bank in any way the money you borrow is bank money and all bank accounts contain bank money not real money, bank money is essentially an IOU from the bank, this is because banks do not loan out money that is deposited by savers but give out bank money.
ie. person A builds a house and sells it to person B, person B gets a mortgage for ��£300,000 from bank 1. Bank 1 then credits person A's account with bank 2 ��£300,000 that didn't exist before and person B owes bank 1 300,000+interest. In this case the banks as a whole now now owe person A ��£300,000 and are owed ��£300,000 by person B and ��£300,000 are now available to person A to spend that didn't exist before.
This is because the bank of England allows banks to lend more money than they have deposits this used to be on a fixed ratio but is now done by separate deals with each bank. So note how in example above bank 2 now has more money deposited than it did before so can now lend more in future based on a deposit of whats already bank money not real money so the banking industry as a whole the more they lend the more they are allowed to lend as long as the money stays in the banking industry. Only the bank of England can regulate the total money supply and the fact that lending money needs to be profitable for the banks.
This system basically works on the principle that the public are never going to withdraw all there money from the banking system at once, if they did it would cause a bank run like what happened in Greece. The difference being if it happened in the UK the bank of England could just print all the money needed to meet the requirements making all this bank money into real money while Greece being in the Euro can't.
What I don't yet know is if a bank has say 10 billion in deposits and say 100 billion it has loaned I assume the bank pays the base rate interest on 100 billion and gets it on 10 but I am not sure and also have no idea if this is the case what happens to the interest they pay.
Does this make sense and does anyone care?

this is what happens...

https://en.wikipedia.org/wiki/Fractional-reserve_banking

plus when a currency moves from being gold or other valuable backed to a fiat currency then you are relying on a promise rather than an asset to repay you.

you may not want to delve too deep into this or you may want to sink another beer or 3

 

[druid]

Real money is gold and silver....everything else is credit. Fiat money is a promise. Fiat literally means "it is so," someone (a government) says this note is worth $10.00 so it is worth 10 dollars. Banks are allowed to loan 9 dollars out for every 10 dollars they have on deposit. By most accounts...this is known as a ponzi scheme, but you wont get many politicians pointing this out.......

 

[GerritT]

Yeah basically it only works if the majority of people are in debt.
Then they say such and such company has "lost " 100 million quid...where? Down the back of the sofa?
Most of it is legalised theft.

It's mostly "missing expected profits". They're still worth what they were worth, but speculants expected way more.

"This dude can build a house in 2 weeks!"

Yay great dude, love him, have a drink, here's my oldest daughter.

"Nah, it'll take at least a month"

*******! Hate you! *phlegm spit* gimme back my daughter

And still the same person.

 

[Jakeyboi]

The lending thing is an absolute joke, me and my heavily pregnant wife have been looking for a new home. Every bank and mortgage advisor we have been to visit have all offered us waaay more money than we could afford to repay should A the interest rates were to rise in the next 5yrs to 5/6% or B house prices were to drop and we were unable to repay we would have negative equity. They just don't care, just trying to throw as much money at people as they can again. They have all taken my wife's income and factored it in even though we told them she is giving up work to raise our family. They also tried to glam up the repayments at 1.7% ish for the next two years, but all failed to tell me what we could potentially be paying if rates rise. I like to think I'm pretty clued up on these things, but I have plenty of friends and family that can't see past all the big shiny offers. So much for regulating these banks.

 

[CubaLibre]

Wealth consists not in having great possessions, but in having few wants.

 

[chesters-mild]

Ahh! money - wish I had some.
If you have a £5 note you have the promise of £5 - but if you have a mash tun full of hot water & grain you have the promise of a good beer, I'll take the beer - ta!
Cheers

 

[MarkBowie]

Either way there are only a handful of people in the world that know exactly how much “bank” money as you put it is in circulation compared to actual “real” money. That’s the type of thing that if it got out would cause the three horseman to arrive...