Do Banks Create Money out of Thin Air?

Oh geez, you will never learn. The amount of money a bank can create is limited by the amount of reserves they have or can attain. But the creation of a deposit and claiming the deposit is money, is not created from anything but a banker typing numbers in to a computer and saying it exists. If reserves were transferred in to the deposit account than you would have a case. But nothing is transferred in to a deposit account... it is simply a banker typing in numbers. They don't take money or anything to create a deposit account. There is no pool of money that they take to put in your account. It is simply numbers being typed in.

You are confusing two separate acts and combining them in to one.

 

Banks create absolutely no money before deposit accounts multiply money.

If a bank has an initial deposit of $100, that $100 gets counted as reserves. No money has been created. The bank loans $90. No money has been created. The loanee deposits the $90 into a new account. The bank now has $190 in liabilities. Money has been created out of the deposit account. The bank didn't just create it out of thin air. If it could do that, why wouldn't it just make as many laons as possible?

 

No, you haven't created anything. You've just rearranged some already-existing things and renamed the configuration. All of the things that make up the sandwich already existed. All that has changed is your perception of the ingredients.

I think a bank only has to have 10% of its money in cash. The other 90% is imaginary.

 

MMM step 6. You are trying to divorce the application of the loan proceeds from the process of creating money. Furthermore, you are ignoring the fact that a loan agreement is created along with loan receivables and loan payables.

 

Is not that the process by which I created a sandwhich? Yes.

Did the sandwich itself exist before I created it? No.

 

A loan is nothing but a promise, a promise is not a tangible good. Who cares if they need to create an equal amount of promises to how much money they create.

And you are missing step 3 of MMM. If banks needed reserves to create a deposit than step 6 would come before step 3.

They need reserves to settle transfers between banks, they don't need reserves to create deposits. They won't create a deposit if they don't have reserves or can't acquire reserves because that's.

If a bank creates a loan/deposit and they can't get reserves to settle the transfer between banks, that money still exists and that money was still created out of thin air.

 

The individual sandwich itself did not exist but you didn't create the sandwich out of thin air.

 

When the clerk types the numbers they didn't create money out of thin air... they didn't even create money. All they did is make you a promise to pay, on your behalf, money up to that amount.

 

Akphidelta:

This opening post almost calls for an Ad Hominem attack except that I assume that the puzzlement of Akphi is genuine.

Folks, this is not a matter for debate, opinion or thought. It is settled financial practice and has been for at least a hundred years.

Could you please find an economic text, a simple one, and just read it? Start by looking up "Capital adequacy ratio."

 

Not according to the Federal Reserve. I will take their word over yours. Thanks for the opinion though!

 

This makes no sense whatsoever. I understand you are trying to come off as some intelligent individual... but what you just contributed to the conservation means nothing. What does capital adequacy ratio have to do with banks creating money out of thin air? Like I have said 1 million times... banks are capital constrained not reserve constrained.

And just because banks need a certain amount of capital in order to create money does not change the fact that they are creating money out of thin air. Very simple stuff, it doesn't have to be that hard!

 

Did the sandwich exist before I created it?

I a slice of ham a sandwich? Is a slice of bread a sandwich? Is a piece of lettuce a sandwich? Is a dollop of mayo and mustard a sandwich?

Did the computer you are using to interface exist before it was fabricated?

You're not very accurate, but your point is irrelevant.

 

Isn't fractional reserve banking by definition - creating money out of thin air?

 

Your conclusion contradicts your own definition:

"Creating something out of thin air means to make in to existence something that didn't exist before."

If my sandwich didn't exist before as you acknowledge, and I made it into existance, then by your definition is "creating something out of thin air."

That is your definition.

 

Like he already said. It's simply a rearrangement of things that already exist and calling it a different name. You can't break money down in to something that existed naturally. It requires a perception based on the human mind to exist.

 

Depends on how you are defining "money" and what you mean by "creating out of thin air"

Based on the definitions Akphidelt gave us it is. But then so is every thing else that has been created by man.

 

One would think... but not with Iriemon, Dr. Righteous, and Snooop. I always thought it was a pretty universally known fact. Lol

 

You've acknowledget the sandwich I made did not previously exist.

Based on your definition:

"Creating something out of thin air means to make in to existence something that didn't exist before."​

I agree that both the sandwich and the money are created out of thin air.

 

Except you don't take the word of the Federal Reserve, as you have repeatedly failed to show where they say a bank can create out of thin air.

In fact the Federal Reserve points out that a bank cannot simply create money out of thin air, because when it makes the loan, it has to be able to pay out cash or reserves to fund the loan.

 

Your definition of "out of thin air" is inaccurate and misleading. Creating something out of thin air means that you are creating something from nothing. Your definition is that it is creating something that didn't exist before. By that definition, anything created by humans was created out of thin air.

"The sandwich I ate for lunch was created out of thin air."

Think about how silly that sounds. The sandwich was not created out of thin air. We know it was created from bread, mayo, and ham. Think about why this makes your position illogical and then apologize.

 

You didn't make a "sandwich" exist. You put things that existed together and called it a sandwich. The term sandwich was created out of thin air, but the sandwich you made was not.

 

When does the sandwich stop being a pile of ingredients and start being a sandwich? Isn't it when the human mind perceives it as a sandwich? Same as when the human mind perceives carbon smears on a paper or flipped bits in a computer as money.

 

Dude, of course I made the sandwich exist. I put bread ham lettuce mayo and mustard together and created a sandwich did not previous exist.

Quit being silly.

I certainly agree I did not create the sandwich out of thin air as the term is commonly used, but it certainly was under you definition of the term:

"Creating something out of thin air means to make in to existence something that didn't exist before."

 

So what does a bank use to create money, lol? I can type numbers in to my computer right now and it's not money. So how can they type numbers in to the computer and magically create money?

 

They can't. They have to make an agreement with someone to give them a loan with a loan agreement, and then pay out cash or transfer reserves from the excess cash/reserves when the borrower applies the loan, and then the payee has to deposit the money into an account. That is the moment that new deposit account values are created.