Where does money come from?

Discussion in 'Free Speech Alley' started by flabengal, Mar 11, 2010.

  1. flabengal

    flabengal Founding Member

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    Just got wise to this a few years ago. Still not sure I understand the mechanism totally. I wonder why nobody explains this to you in school?

    How would you answer this question?

    95% of money in the US comes from:

    A) The US Mint prints it and distributes it to banks.

    B) The Federal Reserve creates it based on the US bond market.

    C) Private Banks create it out of thin air as a loan based on a pledge of repayment by the borrower.


    YouTube - Money As Debt (1 of 5)

    After watching this my understanding is that C is correct.
     
  2. Bandit88

    Bandit88 Old Enough to Know Better

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    I only watched the first bit. But what seems missing from the initial explanation is the risk the banker takes in lending. When a bank loans money for a car, the bank owes the carmaker and owns the car. When a bank loans money on a house, the bank owes the builder/seller and owns the house.

    As we've witnessed recently. While there may not be physical assets backing up the loan, the risk is very real.

    Thanks for posting this - interesting topic.
     
  3. CajunlostinCali

    CajunlostinCali (877) 522-5001

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    I planted a tree in the back yard. I am just gonna wait and see.
     
  4. flabengal

    flabengal Founding Member

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    I hear they have stuff growing on trees out there that is the next best thing....
    Well, yes they get to charge interest on the loan. I'm not smart enough to figure out what the correct interest rate should be, really.....I'm just fascinated if that is in fact correct that the bank creates that money out of thin air....I didn't realize that was really allowed. I know the FED creates money at one level, and I know the FED is private but I thought somehow the banks themselves had to borrow it from the FED to be able to lend it.:huh:
     
  5. PURPLE TIGER

    PURPLE TIGER HOPE is not a strategy!

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  6. mobius481

    mobius481 Registered Member

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    No worries. Turns out the brightest minds on Wall Street couldn't figure that out either.
     
  7. LEGACY TIGER

    LEGACY TIGER Defy Yourself

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    I planted 2 of those money trees in my back yard about 8 years ago. So far I have spent about $3000 in fertilizer, tree food, insecticides, and water to keep them alive, but still no money. These things better start producing soon or they are gonna break me.:rofl:
     
  8. LaSalleAve

    LaSalleAve when in doubt, mumble

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    My wife seems to think it just magically appears.
     
  9. red55

    red55 curmudgeon Staff Member

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    Money is magical. For frugal people it seems to multiply. For lavish people it tends to divide.
     
  10. mobius481

    mobius481 Registered Member

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    Very true although it's important to point out that being frugal and being lavish is all relative.
     

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