Money Supply, Banking 101

By pjain      Published March 18, 2021, 9:34 p.m. in blog Invest   

Banking 101

Fractional Reserve Banking System

  • In fractional reserve banking about 97% of money is created by private commercial banks not Central bankers
  • Consumers "forced" to deposit (often Direct Payroll deposit) wages into bank accounts
  • Allowed to lend say 90% of deposits out - 10% is "reserves" to borrowers, whereby a bank simply adds the amount of a loan to the borrower's account, held on computer (or, in earlier decades, in written ledgers).
  • Borrower Recipient often "park" working capital, etc. back in banks - which again can banks lend out again
  • Cycle of 0.9 + 0.9^2 + 0.9^3 + 0.9^4 etc means 97% gets lent out but even more .. 3-5x multiplier goes to create MONEY SUPPLY

Banks Control Money Supply not CBs/Governments-Monarchs

Money Supply and process of credit-creation is constrained only by banks' judgements of the likelihood of repayment of loans, and not by the monetary policies adopted by the state or central banks.

Thus, banks are fundamentally money creators out of nothing rather than intermediaries.

  • Savings ultimately derive from loans, not the other way round;
  • Debt (created by loans by banks) is necessary for 97% of our money supply.

MBS, ABS, CBOs - all bought by despo Pension funds to boost returns as CBs push yields negative, enforce laws to buy Gilts!

Banks lend for higher RoI at acceptable risks at their OWN JUDGEMENT

  • Banks judge who gets loans so who grows!
  • at their OWN JUDGEMENT
  • In reality mostly private banks' often foolish lending based on personal biases, racism/redlining
  • "Safer" mortgage lending (but originators pushed fraudulent appraisals,etc) pushed
  • Neglect "productive" industry (globalized) - would you fund a tiny shop vs big gorilla (China - new Microsoft)
  • Profits are grabbed and given to "partners/traders"
  • Losses are socialized as banks get bailed out as "Too big to fail"

  • For example Indian capitalist promoters get cheap PSU loans based on political cronies and corruption. Then they get import licenses (forex permits), and licence-raj favorable, basically monopoly on supply constrainted consumer markets! This nexus of cronies is why in China and India vast majority of money originates from state owned banks.

  • The financial crisis of 2007/08 occurred because we failed to constrain the private financial system's creation of private credit and money. [Perhaps as removal of bank regulation under Clinton era/Summers/Rubin/Wall street masters] - UK Financial Services Authority

  • SEE - Frankenstein's bankers - the tale every taxpayer should know | openDemocracy

Yield Curves

Repo Trade and Liquidity

The Dynamics of Money Supply, GILTs and Central Bankers Interaction

UST 10-30yr $21T bedrock of Global Finance

EU drives LT bonds -1.5% to keep EURO alive

Japan drives LT bonds -1.5% - waiting 24years to get inflation facing 30% savings rates, aging

Corporate Bond Market Realities

International Banking Realities

Carry Trade

Scratch Macros, CBs rates, Money Fiscal

  • 1913 Fed setup
  • 1929 US banking system collapse
  • 1933 Gold seized in USA, cheat owners by raising per oz price after
  • 1945? Bretton Woods, Basel II, IMF - cement USD as global reserve currency as Pound decimated on India free
  • 1971 Dollar taken off
  • 1980 China becomes touted as world's globalization bitch - gets back by closing industrial jobs in West
  • 2000+ China leverages WTO, its Great Red Firewall, non-tariff boundaries to grab IP
  • 2008 GFC
  • 2020 China Virus kills 3m+ globally, 300k+ in USA alone - Trump spreads virus by dissing Masks, Mass rallies, Cronies ABT/GILD


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