Where does money come from?

flabengal · 03-11-2010, 08:34 PM

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.

Bandit88 · 03-11-2010, 09:13 PM

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.

CajunlostinCali · 03-11-2010, 09:17 PM

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

flabengal · 03-11-2010, 09:36 PM

Quote:

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

I hear they have stuff growing on trees out there that is the next best thing....

Quote:

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.

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.

PURPLE TIGER · 03-12-2010, 05:11 AM

mobius481 · 03-12-2010, 05:50 AM

Quote:

Originally Posted by flabengal

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.

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

LEGACY TIGER · 03-12-2010, 01:06 PM

Quote:

Originally Posted by CajunlostinCali

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

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.

LaSalleAve · 03-12-2010, 01:23 PM

My wife seems to think it just magically appears.

red55 · 03-12-2010, 01:29 PM

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

mobius481 · 03-12-2010, 01:42 PM

Quote:

Originally Posted by red55

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

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

Bandit88 · 03-12-2010, 03:51 PM

Quote:

Originally Posted by mobius481

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

Of course, but the effect is the same. $5 turns into $50, $5,000 turns into $50,000. Or vice versa.

Frugal without intelligent investment risk is not worth it, though - in my opinion.

bayareatiger · 03-12-2010, 06:58 PM

My wallet.

OkieTiger_KATT · 03-12-2010, 07:07 PM

Quote:

Originally Posted by CajunlostinCali

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

Quote:

Originally Posted by LEGACY TIGER

I planted 2 of those money trees in my back yard about 8 years ago.

if those things start producing and either of you need help havesting, i'll be more than happy to help. completely out of the goodness of my heart so y'all dont have to do so much work, of course.

Bengal Buddy · 03-12-2010, 07:22 PM

Quote:

Originally Posted by flabengal

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.

The mint is the only institution that creates money. All the others simple redistribute it.

TheDude · 03-12-2010, 11:52 PM

No. Everyone knows that money comes from greedy, lazy rich people that lay around on their yachts, don't create anything or contribute to society in any way.

Then we tax them.

flabengal · 03-13-2010, 09:58 AM

They create it out of thin air and then charge you interest on it! What a racket!

gumborue · 03-14-2010, 05:04 PM

"Trout, incidentally, had written a book about a money tree. It had twenty-dollar bills for leaves. Its flowers were government bonds. Its fruit was diamonds. It attracted human beings who killed each other around the roots and made very good fertilizer."
— Kurt Vonnegut (Slaughterhouse-Five)

Beaux-Bo · 03-16-2010, 01:13 PM

Quote:

Originally Posted by LaSalleAve

My wife seems to think it just magically appears.

We must have married sisters

03-11-2010, 08:34 PM	#1
flabengal Registered Guest Join Date: Apr 2003 Posts: 693	Where does money come from? 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.

03-11-2010, 09:13 PM	#2
Bandit88 Old Enough to Know Better Join Date: Aug 2007 Posts: 4,984	Re: Where does money come from? 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. __________________ *"I have a fairly strong feeling that his career for the most part will be wasted at LSU."* Forum member discussing Russell Shepard's future at LSU, January 26, 2009. http://lsutigerbait.blogspot.com

03-11-2010, 09:17 PM	#3
CajunlostinCali "][" {[]} {[]} ][_ Join Date: Nov 2007 Location: in my shadow Posts: 5,572	Re: Where does money come from? I planted a tree in the back yard. I am just gonna wait and see. __________________ The quality of a civilization is measured by how it treats its weakest members.

03-12-2010, 05:11 AM	#5
PURPLE TIGER HOPE is not a strategy! Join Date: Nov 2006 Location: Slidell, Louisiana Posts: 5,144	Re: Where does money come from? __________________

03-12-2010, 01:23 PM	#8
LaSalleAve N.O.R.M.L. Join Date: Jun 2008 Location: within the confines of my own screwed up mind. Posts: 7,114	Re: Where does money come from? My wife seems to think it just magically appears.

03-12-2010, 01:29 PM	#9
red55 curmudgeon Join Date: Oct 2002 Location: Baton Rouge Posts: 22,775	Re: Where does money come from? Money is magical. For frugal people it seems to multiply. For lavish people it tends to divide. __________________ "Half of the American people have never read a newspaper. Half never voted for President. One hopes it is the same half." -- Gore Vidal

03-12-2010, 06:58 PM	#12
bayareatiger Inescapably hyperbolic Join Date: Oct 2002 Location: fremontcali Posts: 4,787	Re: Where does money come from? My wallet. __________________

03-12-2010, 11:52 PM	#15
TheDude I'm calmer than you. Join Date: Oct 2006 Location: Houston, Tx. Posts: 4,015	Re: Where does money come from? No. Everyone knows that money comes from greedy, lazy rich people that lay around on their yachts, don't create anything or contribute to society in any way. Then we tax them. __________________ I'm the Dude. So that's what you call me. That, or Duder. His Dudeness. Or El Duderino, if, you know, you're not into the whole brevity thing...

03-13-2010, 09:58 AM	#16
flabengal Registered Guest Join Date: Apr 2003 Posts: 693	Re: Where does money come from? They create it out of thin air and then charge you interest on it! What a racket!

03-14-2010, 05:04 PM	#17
gumborue Blind Faith Join Date: Dec 2003 Location: Stafford, Va Posts: 8,973	Re: Where does money come from? "Trout, incidentally, had written a book about a money tree. It had twenty-dollar bills for leaves. Its flowers were government bonds. Its fruit was diamonds. It attracted human beings who killed each other around the roots and made very good fertilizer." — Kurt Vonnegut (Slaughterhouse-Five) __________________ "The income gap between the rich and the rest of the US population has become so wide, and is growing so fast, that it might eventually threaten the stability of democratic capitalism itself"--Alan Greenspan

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