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Comment by phkahler | Hacker News Reader

They don't create money, they loan out deposits. It's not as scammy as people think. You are free to put your cash in a mattress instead.

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Sure, but loaning out deposits creates money, does it not?

Most of that loaned out money is getting deposited into another bank account. And that deposited loan will (minus a percentage kept in reserve) get loaned out again. And so on, etc. I might be missing something important, though.

Loaning out deposits creates money + debt. The amount of money is cancelled out by the amount of debt.

I guess it's unclear what you mean by "creating money". Anytime I lend money to someone, they're going to spend it on something.

They have a liability (their debt to me) and an asset (the thing they "bought", which could be anything from a T-bill, to a bagel). Basically, any debt "creates money."

If you lend money to someone, it's no longer available for you to spend. However, if a bank loans out the money that you deposited, both the borrower and you can spend it. This is known as money creation, as it expands the money supply.

> if a bank loans out the money that you deposited, both the borrower and you can spend it.

When you "spend" money that you deposited with the bank, what you're actually doing is getting the money you lent to the bank paid off.

What's the difference between that and you lending money to someone to buy a bagel/T-bond, and then at some point in the future, getting money back so that you can buy a sandwich/car?

If that were true, bank runs could not happen.

Yes that is roughly how it works.

https://en.m.wikipedia.org/wiki/Money_creation#Role_of_comme...

If a bank loans you money and you use it to build a house, or start a restaurant, then in due course there will be:

  - new money, created by the loan; and
  - a new, valuable asset — the house or restaurant — worth very roughly that amount of money.

Case by case these won’t always balance, but we trust private banks and borrowers to get it broadly right in aggregate. It all works out except for when it doesn’t.

But somebody had better be creating money in a growing economy. Otherwise the stock of desirable stuff will grow while the stock of money remains constant. And once that happens, people start hoarding money rather than doing the hard work of investing in new productive assets. But creating new productive assets is where the growth comes from, not to mention a big chunk of the jobs.

I doubt bank-created money is the only way to avoid deflation and depression. But it’s about the least centrally-controlled alternative I can think of.

>> Sure, but loaning out deposits creates money, does it not?

No. It moves it to someone else and creates a debt. It needs to be paid back.

The create money by loaning out many times the amount of deposits they have.

No. Less than their total deposires. But loaned money may well end up in a bank where it might be loaned out again. But it's not IMHO right to try to claim one deposite as somehow "the first one" that gets loaned out repeatedly. Each deposit is loaned out less than 100 percent.

The bottom line is that not all deposited money is not readily available on short notice.

If you deposit $1000 in a bank, and if the reserve requirement is 10%, the bank can lend out $10,000 to a borrower. It gives the borrower a bank account with a $10,000 balance. It has created $9000 of money out of thin air.

Sure, but why couldn't be a bank that's just like a money vault and that's it. I don't care if I get no interest, I may even pay a fee for that service.

That’s called a safety deposit box.

Chase doesn't allow storing cash in them (other than collectible items) and I know that others banks don't allow either (most likely to limit their liability).

I lived through Washington Mutual going through FDIC receivership back in 2008 (I was their employee, shareholder and account holder at that time) and their stock price dropped to almost zero when the news broke about that. I'm curious why this is not the case here.

> I'm curious why this is not the case here.

SIVB trading was halted during premarket at 8:35 EST due to pending news, and never resumed trading.

No, not a safety box. A bank. Like the other ones but without them playing bets with your money. That's literally it.

For a large enough fee you will absolutely find (or create) such a bank.

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