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Fractional Reserve & Money Supply
Banks loan money they don't have. Most hold a limited reserve to serve the few who decide to make redraws. When the majority decides to liquidate their bank accounts we have what is called a bank run.
In order to protect the banks, central banks were created to provide a guaranteed reserve for commercial banks. But once the government stepped in to protect the banks the fractional reserve mandates(only a fraction of deposits are backed by actual cash) began to be used to make up the money from thin air. Every dollar that a bank holds can be multiplied by at least 10x.
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MORE IDEAS ON THIS
We print money digitally. As a central bank, we have the ability to create money. And we do that by buying bonds for other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Rese...
JAY POWELL, CHIEF OF FEDERAL RESERVE
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A history of the US fiat currency
1933 - President Franklin D. Roosevelt had gold confiscated and people were forced to accept paper money for their gold. The government needed people to adopt the inflated paper and they used force.
1940s ...
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Money Supply & Inflation
We can measure the supply of money that exists in the market with main metrics:
- M1 money supply includes liquid money aka cash.
- M2 (which includes M1) includes loans, deposits & market funds. This is mainly made up money.
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Fiat money
Fiat money is a government-issued currency that is not backed by a commodity such as gold. Most paper notes started as being backed by a reserve of valuable commodities, usually gold (the "Gold Standard"). Tying a currency to gold limits inflation and money suppl...
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Life-long learner. Passionate about leadership, entrepreneurship, philosophy, Buddhism & SF. Founder @deepstash.
MORE LIKE THIS
Fiat money
Fiat money is a government-issued currency that is not backed by a commodity such as gold. Most paper notes started as being backed by a reserve of valuable commodities, usually gold (the "Gold Standard"). Tying a currency to gold limits inflation and money suppl...
What happens to your money
Banks don’t like to give away their money. That mindset is reflected in the interest rates of checking and savings accounts of 0,5% and 0.9% avg. annual interest respectively.
When you deposit your money in the bank, the bank turns around and invests that money at 7% a year or more. ...
Risks Involved
- The Unpredictability of The Market: There is never a guarantee that you will make a profit when you make a sale.
- Credit Risk: When investing using leverage, the bank owns the property until you have paid the loan in full. If you are unable to pay ...
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