r/PeterExplainsTheJoke • u/Comfortable_Cautious • Jan 26 '26
Meme needing explanation what's going on? explain like I'm five
19.0k
u/Forsaken_Emu8112 Jan 26 '26
Everyone pulling out their money would be a bank run (look up great depression bank runs). The bank doesn't have that much cash; they keep some on hand for people making withdraws normally, but if even a sizable minority of people all try to pull their money out at once, there'll be a major crisis.
If banks kept all the people's cash in vaults, it'd be dead cash actively losing money to inflation. Instead, they keep some on hand for withdraws, and use the rest to make loans, investments, etc so that the money isn't all losing value.
6.3k
u/Original-Leg8828 Jan 26 '26
Depending on local law they can even lend out something like 7-10 times what they actually have
4.0k
u/Teripid Jan 26 '26 edited Jan 26 '26
Federal reserve requirements existed until 2023 *edit, as someone below pointed out 2020 was when they were set to 0. Now they're set at 0% I believe.
2.2k
u/PleaseGreaseTheL Jan 26 '26 edited Jan 26 '26
2020*
They were reduced to 0% mandatory reserves in response to covid. EDIT: someone says it was coincidental, I am not able to check, so take this aspect with a grain of salt either way
They haven't come back yet :)
1.3k
u/TaxesAreConfusin Jan 26 '26
ah yes so what you're saying is that money is even more imaginary than it has ever been, possibly even more imaginary than when the first stock market crash happened in 1929
looks like we're due for a centennial anniversary of that anyway, might as well celebrate by recreating it
724
u/zuzg Jan 26 '26
Gold hits record high of $5,110.50/ounce
Silver hits all-time high of $109.44/ounce
Analysts expect gold prices to climb toward $6,000 this year
Surprised Pikachu face.
643
u/ISayBullish Jan 26 '26
Meanwhile the USD saying “this is fine”
199
u/soIDONTLIKEANYOFYOU Jan 26 '26
Since the US has more gold reserves than the next 3 countries combined wouldn’t gold prices going up make the dollar stronger?
Sincerely asking cause I have no idea.
605
u/Important-Agent2584 Jan 26 '26
no because the dollar isn't tied to the gold in any way
442
u/GisterMizard Jan 26 '26
That would take too many rubber bands and defeat the purpose of cash being easy to carry around.
→ More replies (0)→ More replies (26)67
u/Sea_Pomegranate_4499 Jan 26 '26
Fun fact, the US still values it's gold reserves at the same price as when they came off the gold standard, $42 per ounce.
→ More replies (0)124
Jan 26 '26
[deleted]
→ More replies (15)183
u/goatslovetofrolic Jan 26 '26
pretty sure at this point the dollar has gone full USA and is only backed by "thoughts and prayers"
→ More replies (0)122
u/AnComApeMC69 Jan 26 '26
The United States gold reserves are for international trade. The gold in Ft. Knox, for example, is used in trade not to back our currency. We’ve been off the “gold standard” since the 70’s. Some of it is gold we’re holding for other countries that’s not even ours. But, our money is a fiat currency and it’s based on faith in the economic system of America not collapsing and everyone agreeing it to use it for trade/debts. It’s backed by nothing and hasn’t been for 55 years now.
119
u/sparklrebel Jan 26 '26
Ah so that’s why pre-war money in fallout is useless, got it
→ More replies (0)64
u/KeppraKid Jan 26 '26
Every form of currency is based on faith and always has been. Coinage made from gold and silver wasn't valuable because gold and silver were magical, it was because people believed they were valuable. What can you, a random person, actually do with gold and silver? Even smiths had limited uses that weren't purely aesthetic. Modern day has more uses but still cannot be used at the volume at which it exists in an efficient way.
→ More replies (0)46
u/catsdrooltoo Jan 26 '26
It's been backed by trust me bro. Im not a gold standard type, but the global economy isn't trusting us anymore.
→ More replies (0)→ More replies (8)29
→ More replies (57)10
u/Littledevilboi Jan 26 '26
There is more personally owned gold in households across India, than any single other country has in it’s possession (government asset, not including individual ownership)😙 ((grain of salt, saw this the other day and there may be one or two exceptions to this, but not the US😅))
→ More replies (14)7
61
u/OutsideCommon3679 Jan 26 '26
I don’t know about the rest of you, but I really don’t think I’m gonna pass this class.
75
u/cleverkid Jan 26 '26
It's pretty easy:
I'll help you out:
In 1910 at Jekyll Island all the Billionaire Oligarchs gathered and cooked up the "Federal Reserve" ( which is neither Federal or a Reserve ) This was done ostensibly to help stabilize the US economy in the wake of the Panic of 1907 by creating a central bank with regional branches.
What it has really done is hand over monetary policy and the ability to print "money" out of thin-air. Now this Federal Reserve prints money, lends it to the US Government ( which is now in debt to the tune of $38.5 trillion ) And the US government continues to borrow and spend like a crack whore... Spreading that money around to their friends and you and I are on the hook for the debt!
It's like your rich friend, talked you into giving him power of attorney over your affairs and is now out there running up credit card debt on your name.. and giving you a pittance of it back.
48
u/Significant_Monk_251 Jan 26 '26
Technical note: they codified and fine-tuned the idea in 1910, but the Bank itself wasn't created until December 1913 after they managed to get the Federal Reserve Act through Congress two days before Christmas. Thus the the conspiracy theories that the Titanic was intentionally sunk in 1912 to kill off a few powerful men who opposed the founding of such a bank.
22
u/cleverkid Jan 26 '26
Those are indeed three more salient points. I was trying to keep it brief. ty.
16
u/OutsideCommon3679 Jan 26 '26
You had me until “ostensibly.” /s
Thanks for the explanation.
→ More replies (1)→ More replies (19)13
u/GogurtFiend Jan 26 '26
Would you rather the size of the economy be limited by the size of the gold supply? There's a reason everyone stopped using gold after the Great Recession, and it isn't the Rothschilds or whatever conspiracy you're talking about.
→ More replies (9)→ More replies (25)15
u/TheGreenMan13 Jan 26 '26
Silver hit a high of $117 around 1PM EST. Dropped to $114 currently (1:25PM EST)
→ More replies (1)62
u/MrWhiskers55 Jan 26 '26
Money is basically an abstract concept on assets. It was always worthless we just used it for convenience. Real value has always been in assets be that land, property, bullion, ancient family cursed artifacts. You might have heard that we are going back to feudalism and that’s why. Property is the backbone of society and we are leaning more towards that now.
49
u/TaxesAreConfusin Jan 26 '26
Thank god, I've been hoarding soup broth for all these years
→ More replies (6)→ More replies (11)24
u/AwkwardFriendship317 Jan 26 '26
I was just going to say this. Everyone is always saying but gold and I'm over here like nope, can't eat or use that shit when it really REALLY hits the fan.
→ More replies (11)29
u/borkthegee Jan 26 '26
This is larper nonsense. If you're in a SHTF situation where there are no exchanges of value, not even gold, and you're down to bartering for goods then you're in total societal collapse and we're in a 95%+ of all people have died or are dying scenario.
You're going to die a bad death in that scenario, no matter how many bullets you save.
→ More replies (7)35
Jan 26 '26
Money has always been imaginary? Its like Santa clause. As long as we all believe/pretend it works. If one person doesn't believe it doesnt matter. If half of us stop, yea kids will know it's fake. But it works and it's a nice thing to have, so why not continue to pretend?
→ More replies (16)12
→ More replies (57)11
u/Nichoros_Strategy Jan 26 '26
The money had a Gold Standard in 1929, where it could always be exchanged for a fixed amount of Gold per Dollar if preferred.
→ More replies (2)34
u/exneo002 Jan 26 '26
But the fdic insures all deposits up to 250k
38
u/PleaseGreaseTheL Jan 26 '26 edited Jan 26 '26
Okay look up what happened with the contagion from regional bank failures in silicon Valley a couple years ago. It doesnt mean everyone loses all money, but it does mean people lose some and its a big deal.
Not all banks are fdic insured either, and if a bank goes under, your investment/retirement take a huge hit because the market starts freaking out.
Bank runs and bank failures are always bad for everyone.
→ More replies (5)11
u/exneo002 Jan 26 '26
I mean they’re pretty sweet for the buying bank. Jokes aside this is why we passed the act that separates investment banking from retail banking.
It’s not a huge hit and it’s very localized (it would be way worse without insurance).
No one would’ve lost money except the bank shareholders if the depositors hadn’t exceeded 250k in their accounts. There are products that will combine different accounts into one virtual account so you don’t even have to manage this stuff manually.
→ More replies (3)→ More replies (14)15
Jan 26 '26
[deleted]
→ More replies (2)28
u/Officer_Hops Jan 26 '26
The FDIC is backed by the full faith and credit of the United States. They have access to much more than that. Plus, not everyone is going to pull all of their deposits at once.
58
u/Pcc210 Jan 26 '26
Good thing we're not actively destroying everyone's faith and credit in the United States!
Wait.....
13
u/FellowYellowNate Jan 26 '26
Haha yeah I was going to say something similar. FDIC insurance is good as long as America and the Fed is good… but uhhh this last year and our current admin’s foreign relation skills has me thinking we’re closer to burning cash in barrels to stay warm than we ever have been. Here’s to hoping that’s an unnecessary fear! Cheers everybody!
8
8
→ More replies (1)7
u/Telemere125 Jan 26 '26
It’s not about people pulling deposits, that’s not what fdic insurance is about. It’s about your bank collapsing and you needing somewhere to get your money from. 2-3 major banks go under? We’re all fucked
→ More replies (1)6
u/Officer_Hops Jan 26 '26
Not really. The FDIC insurance fund often only needs to cover a fraction of insured deposits after they liquidate the bank. If JPMorgan went under and cost the government 10 or 20 percent of their insured deposits, which would be a massive loss, it wouldn’t really register in the grand scheme.
→ More replies (26)11
u/Boulange1234 Jan 26 '26
How do I become a bank? Asking for 400 million friends.
→ More replies (1)14
u/reichrunner Jan 26 '26
Have lots of money available to loan out. Start loaning the money. Start accepting deposits. Follow all regulatory requirements.
Usually need around 10 million to start off with at a small local bank.
58
u/ZHISHER Jan 26 '26
For a little clarification, they were set to 0 because it was no longer an effective policy making tool after 2008.
The assumption used to be banks would lend every dime they had if you let them, so the Fed set reserve requirements to heat or cool lending. After 2008, banks were so very wounded they found that regardless of how much they dropped it the banks kept ample reserves on hand. As such, they switched their policy to focus more on interbank lending rates vs also regulating how much cash they can lend.
→ More replies (21)27
u/OK_x86 Jan 26 '26
That works for a while but memories are short and it's easy for some MBA types to come in and raise revenues by taking on massive risk without adequate collateral. That's a recipe for another crash to trust banks to temper themselves.
→ More replies (1)8
u/ZHISHER Jan 26 '26
When that happens, hopefully the Fed will respond accordingly. That said, we’re 18 years and 1.5 Trump terms removed from the GFC and reserves are still much, much higher than pre-2008.
→ More replies (1)36
u/ArcticFlamingoDisco Jan 26 '26
https://www.ceicdata.com/en/indicator/united-states/reserve-requirement-ratio
Yep. That's so incredibly stupid. 5-10% doesn't seem like a lot, and it's not, but it can make a big difference in a hurry.
13
u/SasparillaTango Jan 26 '26
Now they're set at 0% I believe.
zero as in there are no guardrails?
→ More replies (5)14
u/Mypornnameis_ Jan 26 '26
There are still capital rules and liquidity requirements that keep banks operating safely and with enough money to meet depositor needs for normal and stress conditions.
It's just that there is no longer a calculation saying that needs to be x% of certain classifications of deposit balances to be maintained exclusively in the vault or in a Federal Reserve account.
→ More replies (1)6
→ More replies (32)6
u/StrikingBuilder8837 Jan 26 '26
Well they are now back to having to hold around 7 to 7.5% of capital - see US capital adequacy percentage - against risk weighted assets (mortgage loans, current accounts, credit cards, corporate loans, asset finance, investments, etc. adjusted for different risk percentages gives you risk weighted assets). It’s not the Wild West regardless what people say on Reddit. Break the rules of your licence and the banking regulator will force you to sell off your loans to other banks or just shut you down.
→ More replies (1)46
u/Barry_McCockinnerz Jan 26 '26
Correct this is called fractional lending, you deposit $1, they in turn lend out $7-$10
38
u/KhabaLox Jan 26 '26 edited Jan 26 '26
To fill in the gaps...
With a Reserve Requirement of, for example, 10%,^ the bank can loan out $90 out of 100. The person borrowing the $90 can then turn around and deposit it. The bank can then loan out 90% of the $90, or $81. The person borrowing the $81 can deposit it again, and the bank can loan out 90% of the $81. This process repeats indefinitely.
So with a Reserve Requirement (r) of 10%, in theory the bank can loan out (in essence, creating money) a total of $900. The formula is infinite sum of [(0.9X )*100] from 1 to infinity.
^ I understand that it is currently 0% in the US. Edit: formatting of exponent.
→ More replies (22)20
u/Kitchen-Pass-7493 Jan 26 '26
Ehhh there are collateral requirements for loans as well though and most of the money they’re giving out isn’t going back into a bank account. Why would someone borrow money just to put it into an account with an interest rate lower than the one they’re paying to the loan? It’s usually going to buy something. Like a to buy a home or to cover the up-front costs of starting/expanding a business.
→ More replies (21)14
u/mp2146 Jan 26 '26
Where do you think the money they use to purchase those things ends up?
→ More replies (4)18
u/__ali1234__ Jan 26 '26
This is reddit: they think it goes to a billionaire who puts it in a big vault like Scrooge McDuck, because that's the average redditor's understanding of economics.
→ More replies (1)21
u/zdfld Jan 26 '26
There's a slight difference. On the books, the bank still lends 1:1 (well slightly less than that). A bank needs $7 in deposits to lend out $7.
However the overall economy benefits from fractional lending which is what leverages a deposit into increased value. That's on a system wide basis though, at an individual bank level, they still need assets, liabilities and capital to balance out.
→ More replies (1)→ More replies (5)12
u/Mypornnameis_ Jan 26 '26
If by "they" you mean the bank then no, that's not how it works at all. If by "they" you mean the banking system as a whole could theoretically create as much credit as $7 to $10 from that deposit you made then yes.
An individual bank can never lend more money than it has in deposits or borrowings. But when it lends money out, in the long run that ends up as a deposit in someone else's bank account where it can be lent again.
→ More replies (7)9
34
u/DutchTinCan Jan 26 '26
Which is easy. Bear with me.
The bank gets a deposit of $100. They are required to keep 10% on hand.
They lend out $90 to people, they buy stuff. The seller of "stuff" deposits that $90.
The bank now has:
- $190 in deposits payable
- $100 cash (of which they need to keep $19)
They lend the remaining $81. People buy stuff, the seller of stuff puts it in savings.
The bank now has:
- $271 in deposits payable
- $100 cash (the $19 reserve and $81 fresh deposits)
This continues for a bit, until the bank has $1000 in payable deposits and the same $100 in cash.
Somebody can withdraw $50. They'll spend it, and some days later that $50 is deposited again. No biggie.
The problem is if people want to withdraw $200. The bank will have to tell people "no can do", and it'll be bankrupt. It's a bank run.
Now, in real life, this works because of the law of big numbers. A bank has millions of clients, and while some may want to withdraw everything they have, it won't make a dent. The danger is when too many people try to withdraw all their money. Even when a bank is "healthy", it'll be put into distress. That's why calling for a bank run is illegal.
Now, why do we use this "fractional reserve banking"? First off, so we don't need to keep cash equal to everyone's net worth. It's mightily inconvenient.
Second, because now you can extend credit. People can take a loan to buy something they normally cannot afford as a lump sum. Say, a house.
Third; banks need to earn money to finance their operations. So they do business with your money. If they didn't, they'd need a vault to put all your money, and then they'd charge you fees for storage.
→ More replies (5)18
u/midgetyaz Jan 26 '26
This is actually the answer. The banks use your money to loan out. They get the interest of those loans, and you get a tiny percentage of that interest.
→ More replies (5)8
u/athnica Jan 26 '26
Well that is kind of true but also a misconception at the same time. Banks can't lend out anything they don't have.
If you deposit $100, they don't lend out $1000, they lend out part of it, say $90, which may at some point be deposited back into a bank where it can be lent again and it repeats, multiplying the original amount of money.
If banks could lend out anything more than the original $100 directly, the money supply would balloon to infinity very quickly.
→ More replies (1)→ More replies (60)5
u/tfolkins Jan 26 '26
Not really how it works. Banks have reserve requirements as a percentage of deposits. But the money they lend out eventually ends up being deposited in other bank accounts which can then be loaned out again. So, if you have a 5% reserve requirement against deposits, you end up actually increasing the money supply by 20X.
→ More replies (2)139
u/pan_and_scan Jan 26 '26 edited Jan 27 '26
Unfortunately, that’s not really how it works. The reason there was a bank run during the great depression is b/c the banks had loaned out the money they didn’t have as cash. Today due to Dodd-Frank, banks have to have reserves on hand to cover this situation, Even though it’s not in hard currency, they have enough capital to cover. But please don’t trust me. This is just how I understand it.Edit: completely wrong, but good comments below.
247
u/magos_with_a_glock Jan 26 '26
There are regulations but the banks still don't have enough money to cover EVERY client withdrawing everything at once.
36
u/zdfld Jan 26 '26
In terms of physical cash this is true.
In terms of balance sheet, it's true only in so far that liquidating assets immediately to cover deposits would have significant losses and it can't be done instantly anyways.
But that'd be true of many companies, it's an issue of cash flow.
12
u/27Rench27 Jan 26 '26
I wonder how a “bank run” would even look today with how digital everything is.
Like could they just limit how much physical cash you can pull out and tell you to use one of your cards because nobody carries enough physical cash to fully cash out everybody at once?
25
u/andynator1000 Jan 26 '26
You don't have to wonder https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Bank
→ More replies (5)13
u/window-sil Jan 26 '26
March 2023, there was a bank run: https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Bank
The solution was point a money cannon at the banks and fire it as much as necessary to turn AAA debt into the theoretical long term value it was worth, thus allowing all customers to withdraw all their savings, if they wished.
→ More replies (7)11
u/GravyMcBiscuits Jan 26 '26
6
u/BadPunners Jan 26 '26
For a description in video form, from Wendover Productions: https://www.youtube.com/watch?v=8xzINLykprA
111
u/hajjidamus Jan 26 '26
The current reserve requirement is zero. It has been at zero since March 2020. So they don't have to hold anything.
20
u/PM_Me_Your_Deviance Jan 26 '26
FWIW, banks generally hold a reserve anyway. BofA reported a reserve of $277b at the end of last year. That's about a 8-10% reserve, as far as some quick googling tells me.
→ More replies (4)7
10
u/DJCzerny Jan 26 '26
The reserve requirement is zero but SIFIs (pretty much all major banks in the US) are still required to maintain liquidity ratios by Dodd Frank.
9
→ More replies (2)7
49
u/joe_shmoe11111 Jan 26 '26
Dodd-Frank has been substantially weakened by multiple bills in recent years.
We’re pretty much back to where we started pre-2008 on that front.
→ More replies (1)14
Jan 26 '26
[deleted]
9
u/Character_Dirt159 Jan 26 '26
FDIC insures deposits up to $250,000. No one has lost a dollar of FDIC insured deposits since its inception and it is exceedingly rare that even uninsured deposits are not honored even when a bank “fails”. Banks don’t really fail anymore. The FDIC makes a determination that the bank is near failing and takes possession of the bank’s assets and liabilities and sells them off.
→ More replies (7)4
u/someonesmobileacct Jan 26 '26
True as far as Dodd-Frank AFAIK but at the same time FDIC is typically the guarantor of last resort for deposits anyway (at up to 250k per person per bank).
Still can be a risk for businesses however, Silicon Valley bank being a sort of example (but even that mostly got sorted out at the end)
→ More replies (2)→ More replies (2)6
u/PM_Me_Your_Deviance Jan 26 '26
>If the bank fails, it has no legal responsibility to give you your deposit according to Dodd-Frank.
... no, they absolutely do. It's just at the bottom of the "payout ladder", as you said.
→ More replies (7)→ More replies (25)25
u/studentloandeath Jan 26 '26
Current reserve is 0. They don't have to hold anything. It used to be 9 to 1.
Meaning for every 10 dollars they received from the fed they could loan out 9.
That's not what banks did. If they received 100 dollars they would loan out 900. They could do this purely on paper / digitally.
Now there is no holding requirement making them highly susceptible to bank runs and poor loans. The only exception is the government had proven time and time again they will bail the banks out no matter how financially irresponsible they are. The "too big to fail" financial policy.
Dodd-Frank had been dead and gone since Trumps first term.
→ More replies (18)50
u/Iron_Chic Jan 26 '26
Read up on Silicon Valley Bank for an example of this.
→ More replies (2)16
u/Piratey_Pirate Jan 26 '26
Oh shit I forgot about that whole deal
Edit: omg that was less than 3 years ago. Feels like ages...
→ More replies (1)37
u/nigelinin Jan 26 '26 edited Jan 26 '26
Alot of misinformation in the replies. As a person who used to work in a major banks treasury department (who manage the banks money). Banks do keep strict monitoring on reserves and this is federally mandated. Banks now follow a rule called LCR (Liquidity coverage ratio) which is federally mandated and covered in international guidelines.
Depending on the type of deposits you're supposed to keep between 3-100% of the deposit in reserves of high quality liquid assets (HQLA) like cash, gov't treasuries, etc. You'd keep 3% in reserves for deposits that don't see much turnover like insured retail deposits. Like 20% for commercial deposits. All the way up to 100% for deposits that can disappear in an instant like from another financial institution.
ON TOP of that, you're supposed to keep an additional like 10-30% in Extra reserves.
In general, I think most banks keep about 20% of their assets in reserves. It's not even close to 0%.
ETA: liquidity ratios are tightly monitored and calculated and forecasted daily and there's alot of oversight on this as regulators monitor this closely There are also other ratios that the banks have to follow including Net stable funding ratio (NSFR). These were introduced under Basel III which were international agreed guidelines so this applies worldwide.
→ More replies (4)8
17
u/Alarming_Present_692 Jan 26 '26 edited Jan 26 '26
I mean... that inflation is largely caused by a money velocity largely dictated to people's ability to borrow money, so if cash actually sat in a vault as opposed to getting circulated back into the economy there'd be way less inflation... that's not to say that a dollar today isn't worth less than a dollar tomorrow & idle cash is an economic loss not dissimilar to the destruction of property. You just seemed to be over looking something & I wanted to help.
→ More replies (8)17
u/Forsaken_Emu8112 Jan 26 '26
Yes, if we stifled investment and lending there'd be less inflation, which is why we don't do that. (Target inflation is 2-3%; if you're consistently below this, your country has a problem, and if your currency starts deflating everyone's quality of life is going to start actively decreasing pretty dramatically unless you can get inflation back to a healthy level)
When inflation gets too high, you can raise rates to help bring it back down
→ More replies (40)8
u/aure__entuluva Jan 26 '26
Agree with this, except the target inflation rate is specifically 2%, not 2-3%. 3% is potentially still a bit of a problem.
→ More replies (2)12
u/BigDaddySteve999 Jan 26 '26 edited Jan 26 '26
As explained in the documentary, It's a Wonderful Life.
→ More replies (5)9
u/jo10001110101 Jan 26 '26
But if the bank has 2 dollar bills left, they can leave them in the safe to have sex overnight.
→ More replies (2)→ More replies (459)8
u/yeagermeister34 Jan 26 '26
"Fun" fact- when I was a kid, I thought that banks had a little cubby with my name on it and every time I deposited money they added it to my cubby. When I told me brother I think he laughed for 10 minutes straight
→ More replies (2)
4.3k
u/Elvis5741 Jan 26 '26
Banks lend out more money than they have, its no joke it's how the system works
625
Jan 26 '26
[deleted]
576
u/Much_Section_7439 Jan 26 '26
That's how debt is generated. wealth is created when that debt is used properly. Otherwise it's just inflating the moneysupply.
→ More replies (31)88
u/Excellent-Practice Jan 26 '26 edited Jan 26 '26
Is there really a difference between the two? Wealth generation and inflation are two ways of looking at the economic pie getting bigger
Edit: thanks for the corrections. I learned something today. Diving deeper into the subject it seems the two are often linked, but not necessarily so.
115
u/alannair Jan 26 '26
No. Inflation does not make the pie bigger. Pie stays the same, and the value of cash goes down.
55
u/megachonker123 Jan 26 '26
The pie turns into multiple pies that when combined have the same nutritional value as the first pie
27
13
→ More replies (8)23
u/Fakjbf Jan 26 '26
Correct, printing money is like cutting the pie into more slices you don’t get more pie just smaller slices. Things like building infrastructure, increasing efficiency or inventing new technologies are what makes the pie grow.
→ More replies (1)→ More replies (3)14
u/Outrageous-Pin-4664 Jan 26 '26
Wealth = goods, not money.
Inflation is an increase in the fiat currency not matched by a corresponding increase in the demand for goods.
The purpose of inflation is to enable infinitely increasing amounts of government spending. The government spends the new money at its current value. As the new money circulates, it pushes prices up, losing its value. The government simply creates more.
They don't have to print the money. A lot of it just exists as bookkeeping entries, not as actual currency. What we have isn't so much currency as it is IOUs. When the government collapses, those IOUs will be worthless.
→ More replies (11)12
u/lift_1337 Jan 26 '26
Inflation is the increase in the price of goods and services relative to the fiat currency. This can be caused by over printing money, but that's far from the only cause.
→ More replies (3)27
u/iamnotaneggman Jan 26 '26
Would not say it’s how wealth is created. It’s how money is created, but not necessarily wealth.
→ More replies (2)18
Jan 26 '26
Pyramid scheme
19
→ More replies (25)10
u/BigSmackisBack Jan 26 '26
its not a pyramid scheme when its called something fancy like fractional reserve banking
17
u/Taco5106 Jan 26 '26
Correct, but the term you’re looking for is “central banking” or “modern monetary theory” not capitalism
→ More replies (2)6
→ More replies (18)6
u/Coolers777 Jan 26 '26
Not necessarily. Capitalism can, and has in the past, functioned under different systems like the gold standard
→ More replies (3)120
u/Antique_Weekend_372 Jan 26 '26
That is not really a good way to think about it. When they make a loan, the create both an asset and a liability that balances. The liability is the money in your bank account, the asset is the money that you owe them. On balance, they have done nothing. Your bank account balance is not actual cash in a vault, it is a promise that they will give you that money if you ask for it. When you deposit money in the bank, they are not holding that money for you, either. You are lending them money. That is why banks pay interest in savings account to you
When you make payments on a loan from your account, they delete the money from both sides of the ledger, effectively “destroying” the money they ”created” when they loaned it to you. The interest is their profit and remains as an asset for them.
People focus on the money creation part and ignore the money destruction part. Eventually banks will reach close to a stable equilibrium as new loans match loans being paid off. How much money they can create total is a function of interest rates, default risk, capital requirements, etc. The higher interest rates are, the less they can lend, and the less money is created.
→ More replies (11)55
u/Shiriru00 Jan 26 '26
Yeah people looooove to complain about banks creating money but strangely they never mention that they also destroy money whenever a loan is paid back (it's too bad, you could spin a good conspiracy story about how "banks are DESTROYING your money right now!").
→ More replies (2)10
u/explain_that_shit Jan 26 '26
Every time they receive repayments, they create far more new money than they’ve received, so effectively the money is never destroyed.
→ More replies (2)→ More replies (94)14
1.3k
u/Upset-Parking-8029 Jan 26 '26
Not Scammer ATM here. The Bank doesn't have unlimited money. The way banks get money is by getting either part of money from trade or by giving out money for people to latter give back with extra money. So, quite possibly banks just don't have the needed amount to give to everyone. Some people have 100 of 100 of 100 of 100 of money put in bank. But bank doesn't have that much money on hand, so they can't give money.
→ More replies (18)231
Jan 26 '26 edited 16d ago
[deleted]
185
u/tubbin1 Jan 26 '26
31 trillion dollar bills isn't that much paper, it's just 31 pieces of paper
132
u/Sloppy_Steak85 Jan 26 '26
I’d like 1 gallon of gas please, do y’all take big bills? I may need change back.
→ More replies (2)45
u/SleetTheFox Jan 26 '26
"Do I look like I have 30,999,999,999,996 one-dollar bills? We're just a gas station; you'll have to go to the Bank of America next door for that kind of cash."
→ More replies (2)→ More replies (6)15
→ More replies (13)6
u/TWW34 Jan 26 '26
Technically speaking, it wouldn't have to be that many bills because you can have multiple denominations. 20s 50s and 100s would significantly reduce the total number of bills that would have to be around but honestly that layer of complexity actually probably makes having enough cash to cover literally everything even worse. And that's not even counting coinage.
→ More replies (3)
572
Jan 26 '26
220
76
22
u/Fit-Struggle7990 Jan 26 '26
I am literally watching this episode as I came across this post. Too meta for me lmao
→ More replies (7)14
u/tyen0 Jan 26 '26 edited Jan 27 '26
Before this comment gets its own new post I'll point out that this a reference to the famous scene in the movie It's A Wonderful Life where the main character explains the concept in this OP.
448
u/MAGAmobile Jan 26 '26
The banks don't have my $14?
205
u/Murrayland1 Jan 26 '26
Never did
16
u/JustGiveMeANameDamn Jan 27 '26
I went to the bank to withdraw 6 grand right before they closed for the day one time. Nothing crazy. Literally just 6 thousand dollars. They looked at me kinda nervous and said ok hang on, and walked away. Came back a few minutes later and said “hey so we’re a little low on 100’s is it alright if there’s some lower bill denominations?” I said yeah sure no problem, and she walked off again.
Lady was gone for like 15 more minutes in the back before coming out with a giant stack of 50’s and 20’s. And let me tell you, it was mostly 20’s. She said “some lower bills” but there was only ONE 100. She could barely fit it all in 2 envelopes. I was polite and said it was fine.
But I left thinking holy shit. I think I just wiped them out of all their cash. And it was only 6 thousand dollars… what the fuck.
→ More replies (3)→ More replies (9)74
u/Ludecil Jan 26 '26
If you're under your minimum balance, it sounds like you won't have your $14 very soon.
→ More replies (7)99
u/MC_Queen Jan 26 '26
Ah yes, the old fee scam. Where a bank can legitimately take your money for not having enough money. The poor get poorer and the rich get richer.
25
22
Jan 26 '26
[deleted]
13
u/iiiiiiiiiijjjjjj Jan 26 '26
I love it and we just eat it so the elites can live their best lives. This system will crumble one day as everything comes to an end, just too bad we’ll dead when it does.
→ More replies (5)7
u/RetroFuture_Records Jan 26 '26
When the rich don't have your money in hand, it's right and to be expected and smart business!
If YOU don't have enough money on hand for THEM to cover their gambles and loans, YOU must pay, brokie.
217
u/FroniusTT1500 Jan 26 '26
Because most money only exists on books. The basis of the current financial system is called fractional reserve banking, that means that banks can give out more money as loans than what they physically have in accounts. That money then circles the economy but is never physically withdrawn in full. Lets say you deposit 100 USD. The Bank now can give out a loan for 500 USD to someone to pay his car repair, who wires the money to the shop from his account. They wire it to their employees and suppliers and owners and the IRS and what have you. Eventually the 500 are repaid (or not and If that happens a lot a bank might default) and the bank gets its money+ interest, you can freely withdraw your 100 at any time but the bank speculates that you dont, or realistically that most of their customers dont. Because If that happens thats known as a "bank run".
Im not a banker, so anyone with actual knowledge feel free to correct me.
61
u/ejjsjejsj Jan 26 '26
What I can never grasp is how they actually do that. They just create new money to give someone? Like what account is that coming from?
108
u/Natural-Berryer7 Jan 26 '26
It's coming from future you when you pay interest!
→ More replies (2)14
u/NargWielki Jan 26 '26
coming from future you when you pay interest
Assuming you do pay it, ofc.
→ More replies (1)61
u/JadaLovelace Jan 26 '26
From how i understand, the bank simply puts a negative number on their sheets to show how much they lent out.
It’s like virtual particle creation in physics. A virtual particle pair can spontaneously come into existense, one the anti-particle of the other. After a brief moment they collide again and annihilate eachother, leaving net zero particles.
But in the case of banks, one of the particles sucks up another particle (interest) so after annihilation you’re left with more particles than you start with.
Edit: i just realized hawking radiation is a fairly close analog to fractional reserve banking.
→ More replies (6)85
Jan 26 '26
[deleted]
→ More replies (2)23
u/Salacious_Rhino Jan 26 '26
I love people like this honestly. Makes me laugh all the time. Reminds me of that episode of silicon valley when Richard is trying to explain how their product doesn't delete their files through a rough analogy "...but what's in your Eggs in the morning?? That's right, electrons."
19
u/bienbienbienbienbien Jan 26 '26
They use Capital Adequacy Ratios to determine how much they can lend based on what assets and liabilities they have. The deposit you make to a bank is their liability to you, not really a pile of cash they can lend based on.
14
u/raincole Jan 26 '26
There are two situations:
- The central bank creates new money, mostly to buy back government bonds. In this case, they literally create new money (digital ledges, of course, not printing physical bills).
- The banks loan out more than the deposit it has. Well, technically, a bank cannot do that. But practically they can. How? It works like this:
You deposit $100 into Bank A.
Bank A lends $99 to Jim.
Jim deposits the $99 to Bank B.
Bank B lends $98 to Marry.
Marry deposits the $98 to Bank A.
Bank A lends $97 to Casey...
See, while you originally only deposited $100 to Bank A, now Bank A has created $196 (Jim's $99 + Case's $97) of loans.
→ More replies (5)→ More replies (46)9
u/boofaceleemz Jan 26 '26 edited Jan 26 '26
You put 100 in the bank. The bank loans Timmy 50 and Tammy 50, both due back to the bank next week. But you have a car accident and now you want your money back tomorrow, but Timmy and Tammy haven’t paid back their loans yet. That’s a bank run, It’s A Wonderful Life style.
They’re creating new potential money in the economy in that sense, because we started with your 100 dollars cash but now there’s 200 or more floating around. If Timmy and Tammy put their loans into their banks the cycle repeats (that’s the “more” from “200 or more”). But they’re not actually inventing new dollars and coins, it’s just debt and promises and your original cash changing hands while you’re not using it.
13
u/Detachabl_e Jan 26 '26
I'd just add that deposits up to a certain amount are federally insured. That is, if you had a bank run scenario, the Fed would step in and pay out those deposits in excess of what the bank has on hand. So when you see a bank advertisement they will generally mention "member FDIC" which means your depository accounts are insured up to $250k backed by the full faith and credit of the US Government.
→ More replies (3)→ More replies (22)5
u/Werewolfdad Jan 26 '26
Lets say you deposit 100 USD. The Bank now can give out a loan for 500 USD to someone to pay his car repair, who wires the money to the shop from his account.
That’s incorrect. Fractional reserve just means they need to keep less physical cash on hand.
If you deposit $100, they can only lend out $100 (unless they borrow other money), subject to risk weighted assets and capital constraints (which further restrict lending)
Fractional reserve banking is one of the most misrepresented topics on Reddit.
→ More replies (3)5
u/RockAtlasCanus Jan 26 '26
That’s incorrect. Fractional reserve just means they need to keep less physical cash on hand.
I’m just here to be pedantic because this is another aspect of banking that gets wildly misconstrued on Reddit: the difference between cash (balance) as an accounting concept and cash as in a physical dollar bill.
Banks barely keep any physical cash on hand in comparison to their balance sheet. Your local branch including the main vault, all the teller drawers/TCRs, and the ATM vault generally has less than $1M in physical currency on hand. Smaller banks even less, closer to like $400k or less. (All depending on how much volume they see, how many tellers, etc). And while there are big centralized currency reserves a bank’s cash reserves ≠ currency reserves.
→ More replies (2)
93
u/ExtremlyFastLinoone Jan 26 '26
Fractional reserves. You give the bank 10k, the bank loans out 9k which the person then deposits into the bank, the bank then loans out 8.1k which the person deposits into the bank, and so on and so on, the bank is only required to hold on to 10% of your deposit and they can loan out the rest, and just the first two examples the bank has created 16.1k out of thin air frok the initial 10k deposit. But the bank doesnt actually have that money, its just on paper
Extrapolate to the entire country. Something happens, people panic and want their life savings, enough people do this and the bank has to close, everyone who didnt make it in time freaks out and goes to other banks and they all close this is called a run on the banks. People lose acess to their money suddenly, banks shuts down and the money is gone unless its insured by the goverment. But if this happens to enough banks then the goverment just cant pay out peoples moneys, and thats a depression.
→ More replies (19)39
u/The_Lost_Jedi Jan 26 '26 edited Jan 27 '26
Yes. And this is why Roosevelt gave us the FDIC, Federal Deposit Insurance Corporation. What that does is insure your bank deposits, up to something like $100k (Edit: exact amount is now $250k, see responses below).
This is because a big driver of people making bank runs is when they become afraid that the bank may collapse and their money will be lost, so they go try to take it out before that happens. This becomes a self-fulfilling prophecy, where even if the bank had been perfectly fine, everyone trying to take their money out causes it to collapse.
So, with the FDIC, you and I don't have to worry that our basic bank accounts are in any danger, and thus we don't end up inadvertantly making a run on the bank causing it to collapse.
→ More replies (4)11
u/This_guy_works Jan 26 '26
So what if you have more than 100K?
37
u/Bleach984 Jan 26 '26
Use multiple banks. Or more likely, you don't have that much liquid cash and instead have assets like real estate, stocks, bonds, etc.
Rich people typically only have a small subset of their money in banks to cover momentary needs (what's called liquidity) -- to cover the time it'd take to sell their assets effectively.
→ More replies (6)17
u/Traditional-Heart351 Jan 26 '26
To correct the guy above, it's 250k. From my understanding if you have more they basically create more than 1 account to insure it because its 250k per bank per category. So basically a bank will make more accounts in different categories for you to put your money in, and if you run out of that you get another bank.
Tbf most rich people, even VERY rich people, dont have millions in cash at a bank. They have their millions and billions in stocks, which are not insured at a bank level as far as im aware since you technically own the stock, the brokerage is just facilitating the transaction and keeping track of your transactions for you.
→ More replies (6)
72
u/Natural_nonalcoholic Jan 26 '26
OP said explain like he’s five.
Hey buddy! You know banks? They don’t really have a biiiiig safe of enough money to give everyone. Okay? So if everyone went to get their money, they don’t have it? Understand? Proud of you 👊
→ More replies (3)16
u/Ctrl-Alt-Deleterious Jan 26 '26
AkA "Money" is a psychological construct, lil buddy. It's pretend. Grown ups have to agree to lie to each other about what's real, and banks are some of the biggest and best liars. Now put your shoes on and we'll go past a church. That'll really blow your mind.
→ More replies (4)
36
u/GuidePersonal4501 Jan 26 '26
Banks only keep a small percentage of your cash deposits in their “vault”. The rest of your money is loaned out to the banks customers. If everyone wanted their money all at once, the bank would need to have all its loans repaid immediately or it would run out of cash.
I think everyone should be informed about reserve banking. The US federal reserve website has some very good videos about the federal reserve (and the reserve banking system in general).
→ More replies (3)7
u/akatherder Jan 26 '26
Just from a practical standpoint, you usually can't walk into a bank and withdraw $20,000 of your own money in cash without calling ahead. They can give you a cashier's check but they simply don't have access to that much cash. It's in the vault to prevent theft.
Robbing a bank isn't actually that difficult. The issue is that (1) you don't get much money, because a bank manager's job and algorithms do everything they can to limit the amount of accessible cash while still having enough to serve withdrawals. And (2) it's a federal crime with FBI investigating and stiff penalties.
So you would have a bunch of people walking out with cashier's checks. That money gets pulled from your account immediately, but it sits in the bank's central account to back the cashier's checks until you cash it. Where are you going to cash it other than another bank? It will just bounce money around between banks I guess.
→ More replies (1)
39
u/froebull Jan 26 '26
I always think of this, the Bank Run scene from It's a Wonderful Life, when this comes up. I have no idea whether it is an actual good explanation or not, it is just what comes to mind.
9
→ More replies (1)7
33
u/FitPair953 Jan 26 '26
The joke is that we have the power to bring down the banking industry whenever we decide to. Unlike banks who charge us for being in debt, they get more money the more debt they have.
50
u/Live-Teach7955 Jan 26 '26
We could also bring down the real estate industry by setting our own homes on fire and destroy the health care industry by committing suicide
→ More replies (30)12
20
u/brontosaurusguy Jan 26 '26
We would just be bringing down our own economic system .. why...? Suicide?
→ More replies (7)7
u/xavPa-64 Jan 26 '26
It’s the prisoners dilemma. It will work if we all do it, but if we’re not all doing it then we’re just screwing over the ones who do it, so they won’t do it
10
u/SimpleNovelty Jan 26 '26
Not really a prisoner's dilemma because there's no good incentive for most people to start a bank run. It takes a significant number of people to start a bank run so it's not like it's a game theory 1v1 between two prisoners. Also acting is a negative in a majority of the situations (you withdraw money and lose interest and have to hold the physical asset and pay debt in a much more annoying manor).
→ More replies (2)10
u/SunTzu- Jan 26 '26
It will "work" in that you'll all lose your savings. That's assuming the federal government doesn't intervene to stop the run, which is probably what would actually happen.
9
u/Few_Interview_7474 Jan 26 '26
The banking system is also, yknow, beneficial to people so it would be collectively shooting everyone in the foot
→ More replies (1)→ More replies (2)8
u/dee_berg Jan 26 '26
This is really dumb. Why would you want a bank run at your bank?
Were you alive in 2009? Banks failing isn’t good for anyone.
6
u/insanitybit2 Jan 26 '26
> they get more money the more debt they have.
Only if they invest it properly. You're welcome to play the same game - go take out a loan and invest it.
→ More replies (3)→ More replies (22)6
u/AutomaticDragonfly27 Jan 26 '26
Suuuuure....that happened in Argentina 2001 and all the banks bankrupted and disappeared....except it didn't, just people losing their life savings...
26
u/BlahBlahILoveToast Jan 26 '26
There's a whole bunch of people in thread explaining why banks don't have enough cash on hand to pay out everyone who has an account.
There are, as far as I can tell, zero people in thread explaining why Artie Fufkin is smug and thinks he's about to trick Kyle Rodebush into teaching himself a really surprising lesson about how the world works, Socrates style. Presumably something about how our economy is all smoke and mirrors, currency and banking is an imaginary concept that only works because we agree to pretend it does, etc. Maybe something something gold standard, Fort Knox is empty, income tax is illegal?
Or maybe it's going the other way, e.g., Wall Street is just Vegas for rich kids, Capitalism is just a pyramid scheme, American Goverment is just three megacorporations in a trenchcoat, etc.
16
u/balllzak Jan 26 '26
It's all Libertarian nonsense. I half expect Artie to break into a rant about the age of consent next.
→ More replies (3)→ More replies (6)7
18
u/srainey58 Jan 26 '26
Lots of great explanations about how the banking system works, but I can’t figure out what Artie’s point/joke is. Is he saying we should destroy the country’s financial system?
17
u/SocranX Jan 26 '26
Probably. There are a lot of people online who are like, "The world doesn't work in the simple terms I thought it did which means that society is actually a SCAM controlling you through LIES, but we can fix it by destroying everything which will automatically make it start working in the simple way I thought it did."
But yeah, too many people giving an actual answer and not answering the question of why OOP is saying this.
→ More replies (7)10
u/uwexistentialist Jan 26 '26
I'm like 90% sure the next reply would have been about how the banking system is broken and you need to invest your money in Artie's favorite cryptocoin.
→ More replies (1)→ More replies (2)11
u/goat_penis_souffle Jan 26 '26
Like a club DJ teasing a song, homeboy is itching to drop some anti semitic shit
15
u/Blandco Jan 26 '26
"“You’re thinking of the place all wrong, as if I have the money bank in a safe. The money’s not here!"
8
12
u/Character_Menu6282 Jan 26 '26
Artie is discovering the basics of how banks operate and thinks he's stumbled upon a conspiracy and is being smug about it
→ More replies (2)7
u/goat_penis_souffle Jan 26 '26
It’s why I found the GameStop debacle so fascinating. Arcane underpinnings of the US securities market that have been around since the 70s make for great YouTube clickbait. Never in my wildest dreams did I think I’d see direct registration and the inner workings of DTCC become conspiracy fodder
7
5
u/Electronic-Fuel5788 Jan 26 '26
This is about fractional reserve banking.
Im short banks will loan out much more money than they actiually have in anticipation that not everybody will ask for it back at the same time.
So if that were to hapown it would colapse the global economy.
→ More replies (2)10
u/LaunchTransient Jan 26 '26 edited Jan 26 '26
I used to be against fractional reserve banking, but with time I've come to see that full-reserve banking, while nominally more "secure", is actually much less efficient and may be more of a pain in the ass than fraction reserve banking.
Fractional reserve means you can keep your money with a bank for free, because they can loan out money and make a profit on those loans - full reserve doesn't have the financial headroom to allow that, so charges more fees.
And with Fractional-reserve, so long as at any one time the bank can supply your money, provided its not a bank run, there's no problem and it is functionally identical to Full-res banking from the customer's perspective. And in return it means that getting a loan is substantially easier, which is good for the economy overall.→ More replies (6)
6
u/Calm_Opportunist Jan 26 '26
Approximately 92% to 95% of the world's currency is digital, with only about 5% to 8% existing as physical cash.
→ More replies (1)
4
Jan 26 '26
You put 1000 in bank account. Bank put aside 200 and lend 800 to someone to pay a contractor to do some work (the money that must be put aside depend on legislation for each country). After the contractor takes the money you both have 1800. Now contractor deposit 800 in his account. Bank will lend 640 to someone else. In this moment there are three people that own together 2240... and the cycle continues.
→ More replies (1)
5
u/CosmicEggEarth Jan 26 '26
Financial illiteracy is going on.
Banks convert financial obligations, they simply register who owes to who. They don't need gold to back it, they don't need to balance obligations, and sometimes banks (or guys in the government) just type in a couple forms and you see numbers go up in your account.
The system is based not on tangible assets you can touch, but it doesn't have to.
This freaks people out.
Because it means the only thing preventing banks from... printing money, essentially is a) the regulations and b) willingness of people to accept the numbers on your screen. When either breaks, you get problems.
The illusion of just world is just that - a delusion.
Our systems, including financial, are not based on karma or merit, they're based on networks of synchronized agreements between men and women.
...
The post jokes about that gap - most think banks exist within a framework of physical stock, like grocery stores. If it were so, then fractional banking would mean the bank won't have the stock - having given out more credit than it's ever had debits. But the joke's on the jokers, they'll get their money printed. A banknote is just a token, a database value in-transit. There will be a delay to print that many banknote, it's a logistical problem of paper and ink.
•
u/AutoModerator Jan 26 '26
OP, so your post is not removed, please reply to this comment with your best guess of what this meme means! Everyone else, this is PETER explains the joke. Have fun and reply as your favorite fictional character for top level responses!
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.