Hacker News Reader

Comment by bootload | Hacker News Reader

"I wish more people thought this way."

It used to be common to view personal debt this way.

I noticed a big change in the way debt was perceived by during the late '80s. Since then, debt is seen as normal. I'm pretty sure the finance industry has pushed 'Fractional reserve banking' to the limit to allow unchecked borrowing for land and housing. [0]

Reference

[0] "fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank" ~ https://en.wikipedia.org/wiki/Fractional-reserve_banking

View on HN

There's also the rebranding of the scary "second-mortgage" into the treat-yourself "home-equity-line-of-credit."

Those are two distinct products. I think they're both scary ways to treat-yourself.

It's the way that consumer culture can grow, because you use your line of credit to buy a second or third car, nicer car, jet ski, boat, canoe, etc. Then when you have all of this stuff you have to buy a bigger property just so that you have space to store it. So that means selling your existing property to someone else to repeat the cycle.

It is certainly an efficient way to keep money moving.

Fractional reserve banking doesn't really exist any more in the developed world. Banks lend against their capital, not their reserves [1].

[1] http://www.bankofengland.co.uk/publications/Documents/quarte...

"In normal times, the Bank of England implements monetary policy by setting the interest rate on central bank reserves."

thx @soVeryTired, plz excuse lack of financial knowledge. What is the definition of "reserves"?

A bank's reserves are the funds it holds in its account in the central bank. Some countries require that a certain proportion of the bank's assets are held in reserve in order to be sure it can easily meet its short term liabilities (i.e. to safeguard liquidity). In that regard, the system is a little like fractional reserve banking. But the UK and Canada don't have reserve requirements at all. In general, the main constraint on a bank's lending is its capital. Which is why you read about "core tier 1 capital ratios" when a failing bank makes headlines.

"A bank's reserves are the funds it holds in its account in the central bank."

Are those reserves (capital) fluid? From the tier-1 you refer I get the impression these are real physical assets and in flux. Interesting. How do the UK banks handle market runs? (I must read more about the banking system) In Aus major banks are government backed with minimal competition.

Reply on news.ycombinator.com