WTF! Money Is Created Out Of Debt?
Channel: Stock Docta' Trading
Date: 2023-02-14

#rayDalio #money #debt #fed #shorts 
Money is an essential part of our daily lives, and we use it to buy goods and services, pay our bills, and save for the future. But have you ever wondered where money comes from and how it is created? The answer to that question lies in the complex relationship between debt and the economy, and in particular, how money is created from debt. This process is known as fractional reserve banking, and it is at the heart of the monetary system used by most countries today.

In this article, we will explore how money is created from debt and how it is cycled through the economy between different countries' central banks. We will begin by explaining the basics of fractional reserve banking and how it works. We will then look at how this process creates money and how it is controlled by central banks. Finally, we will examine how this process works on an international level and how it affects the global economy.

Fractional Reserve Banking

Fractional reserve banking is the process by which banks create money from debt. It works by allowing banks to hold only a fraction of the deposits they receive from customers in reserve, while lending out the rest of the money to borrowers. The reserve requirement is set by the central bank of each country, and it is usually around 10% of deposits.

When a bank receives a deposit, it is required to hold a certain percentage of that deposit in reserve, usually around 10%. The rest of the money can be used to make loans to other customers. For example, if a customer deposits $1,000 in a bank, the bank is required to hold $100 in reserve and can lend out the remaining $900 to other customers.

This process creates new money in the economy because the borrower now has $900 that they did not have before, and the depositor still has $1,000 in their account. In this way, the bank has created $900 of new money from the original $1,000 deposit.

Money Creation and Central Banks

The process of money creation through fractional reserve banking is tightly controlled by central banks, which are responsible for maintaining the stability of the financial system and controlling the money supply. Central banks have a range of tools at their disposal to control the money supply, including setting interest rates and reserve requirements.

Interest rates are used to influence the level of borrowing and lending in the economy. When interest rates are low, it is cheaper to borrow money, which encourages more borrowing and spending. This can lead to higher levels of economic activity and inflation. Conversely, when interest rates are high, it is more expensive to borrow money, which can slow down economic activity and reduce inflation.

Reserve requirements are used to limit the amount of money that banks can create through fractional reserve banking. If the reserve requirement is increased, banks must hold more of their deposits in reserve, which reduces the amount of money they can lend out. This can help to slow down the growth of the money supply and control inflation.

Central banks also have the power to create money directly, through a process known as quantitative easing. In this process, the central bank buys assets such as government bonds or corporate debt, injecting money into the economy. This can help to stimulate economic activity and boost inflation when interest rates are already low.

Money Creation and International Trade

The process of money creation through fractional reserve banking has significant implications for international trade and the global economy. Because money is created when banks make loans, the creation of money in one country can affect the value of that country's currency relative to other currencies.

For example, if the central bank of a country lowers interest rates to stimulate economic activity, this can lead to an increase in borrowing and lending, which in turn can lead to an increase in the money supply. This increase in the money supply can lead to inflation, which can cause
No one is coming to save anybody. And that's the hard truth. This is just going to stop just like in 1929 to 1932. There was a debt crisis. And what they did in 1932 was the same thing they did in 2008, and that is that the central banks prints a lot of money and buys government bonds. Think of it this way The central government don't have the capacity to create money.

Similarly, the Federal Reserve does not have the right to spend money and determine how it spent. That's for Congress. There are lots of entities that are in trouble in that way. So the government, they have to give money and so they print money. We call it print. There's not even paper much. It's digitally create money and then that comes in the form of loans.

Okay. So basically they're digitally creating money, which they're allocating to the government. And then the government is deciding how to disburse those funds.
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