Did you know commercial banks create money from nothing?

General
1

When you walk into a bank to get a loan, the bank creates brand new money to lend to you. The debt to you then becomes an asset to the bank and you pay with interest. Banks therefore derive profits by creating money from nothing. The more debts the banks create, the more the profits, the more tax paid to government and hence the higher the economic growth. About 97% of money is created this way.

I think there will be an implosion of world’s fiat currency in the near future because US federal reserve is ‘‘printing’’ massive amount of dollars thereby diluting the value of the money we have because dollar is the reserve currency. Store some of your wealth in properties and just a fraction in cash forms (cash, bonds, bills)

2

Banks use collected deposits to lend. Otherwise, a small bank could theoretically lend Mama Ngina ksh50 Billion it didn’t have. And if she defaults, it can create another 50B to cover.

3

No, and it cant lend 50B to mama mboga because she cant repay that money. Banks create money from nothing, that is how everybody in the country where you live has a mortgage. That is why banks there are no longer required to reserve 10% of deposits. It is easy because nothing leaves the bank really, they only add or substract figures.

4

Can they lend ksh 500,000 to 500 mama mboga.
So what if some can’t repay. According to your theory, they can just recover by creating money out of thin air by shuffling paper.

5

First, this is not a theory, this how it is in the world today

6

You can also watch this another day:

7

Kaa na senior teller @uwesmake akuelezee vile banks hufanya kazi

8

in your bogus theory, a bank will still exist even when all its customers have withdrawn their deposits…?

9

You statement is extremely ignorant for any response, educate yourself

10

I will watch. One thing remember that there has to be a guarantor of mortgages. It’s can be the government or a private party. If a borrower defaults, they eat the loss.

11

You are totally retarded if you think banks own currency minting machines somewhere in their basement. :D:D:D

12

Physical money in any country constitute only about 3%. About the current monetary system, I leave it to you to educate yourself. You may want to start wit federal reserve or central banks, they lend money to governments yet they have no deposits, where do you think the money come from? How do you think a country like US is able to buy more and more goods from around the world yet it is always running trade deficits?

You have to know that while a debt is a liability to you, it is an asset to the bank and it can lend against that. When you take a loan actually, the bank just credits your account and that becomes a new deposit by you to the same bank that has lend you that money. It can then lend out to another customer against your deposit which itself is backed by a debt to you

13

Very cliche statement. We have trade deficits too in Kenya. But we buy more and more from China.

14

The US deficit is such that it imports more than it produces. In other words, they consume more than they produce

15

Kenya?

16

Our balance of trade is also negative (current account) because our central bank is forever making money for the treasury by selling bonds to banks

17

It is true when you are loaned 1million shillings, it does not equate to some hard paper currency somewhere. Its just a number. when dealing with large numbers it is expected that the major portion of loan money will not be withdrawn, but will circulate within the banking system as numbers and nothing more. at a macro level, dealing with large number of borrowers, this is generally true. If all borrowers try to withdraw their money the bank collapses. it is foolish to think that when you get a loan at kcb and pay for a piece of land at equity bank though a bank transfer, kcb carts bank notes to equity bank in the evening. they total up numbers from many transactions and compare in simpler terms.

18

Secondly, at the macro level, dealing with large number of customers, banks receive as much deposits as withdrawals with a little difference. this is because any money withdrawn somewhere is likely deposited again into the banking system, only at a different point. It is therefore not possible to loan out deposited hard cash.
These things are hardly taught at school.

19

:D:D:D:D:D PAR yangu iko 15% banaaaa hata wasapere wanasumbua kulipa loan, but we are slow on auctioning. NPAs zimekuwa tricky provisions ndio zinafanyika . wanachi hawana kakitu

20

Finally, an example is when I have three customers and 10,000 shillings in cash. I can loan each of them 10,000 shillings and get paid interest for each loan as long as the loan appears as numbers in my register. Whenever one of them makes a withdrawal, he/she likely deposits in the other’s account. I always have 10,000 shillings in cash. most of the times, I don’t need to give out the hard paper money for a transaction, but just modify numbers in their accounts. If you were to add up numbers, you would think I have 30,000 shillings, which I have given out as loan, but this is categorically false. if they all withdrew cash I would be caught and system would collapse because of lack of confidence. a bank can only fulfill a small fraction of withdrawal obligations at a time.
Its a questionable system, but it works for now.