Tuesday, April 29, 2014
BAN ALL THE BANKS: Here's The Wild Idea That People Are Starting To Take Seriously
http://www.businessinsider.com/banning-banks-2014-4. DUE 5 May 2014. How do banks create money? How will this new proposal change the way banks make loans? What issue does Paul Krugman raise in considering a move to this type of system?
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Banks create money through loans. Banks receive deposits into accounts. From those reserves, they are required by Federal Reserve Banking law to keep in their "vaults" a certain proportions of what is deposited into these banks, which is about 10%. This means that the remaining 90% can be lent out on interest to create money in the market. However, this new proposal to ban all banks will diminish all expansion of the money supply. Banks are a huge part of what pushes our economy. Paul Krugman claims that abolishing banking will result in a "less regulated shadow banking system", according to the article. The last thing we need is a lack of regulation. Keep banks around!
ReplyDeleteBanks create money by issuing loans. They give out money that they do not really have. A bank's "money isn't in the vaults because it's been loaned out." The article also states that "The reality is that banks don't make loans out of existing deposits. When a bank gives you a mortgage (or any other loan) it doesn't go into its vaults to see if there's cash available that someone else has deposited. Instead, the bank digitally (almost like magic) credits your account with the amount you need to pay for the home." The new proposal to change banks is by FT columnist Marin Wolf, who "called for stripping banks of their right to create money." This proposal would ruin the United States financially, because there is not enough paper, or 'real' money to go around. Debt money actually helps our economy and increases the money supply. Without 'fake' money, we would be in trouble as a nation.
ReplyDeletePaul Krugman, whom happens to be the author of our AP Economics textbook, stated that there are problems with not allowing the banks to create money. In the article, it says that, "Paul Krugman points out one big problem with Wolf''s piece, which is that what might happen is simply more financial activity happening outside the banking system, into the less regulated shadow banking system. Krugman also raises questions of complexity, and whether the problem runs even deeper than financial stability (given that financial stability was restored in fairly short order once the government decided to make that a priority)."
Anita Pizzirani (Pizza)
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Banks create money through loans. When banks receive account deposits, they are required by the Federal Reserve to keep a certain amount in their vaults (aka the reserve requirement, which is about 10%). The rest of the deposits (90%) can be issued as loans with interest, which results in the creation of money--expanding the economy's money supply. Though the revival of the 1939 Chicago Plan--which advocates the banning of banks in order to prevent them from taking risky loans--may seem like a good plan, in the long-run, it will be detrimental to the economy. By taking away the banks' right to create money, we will ruin the system that regulates our money supply. Krugman also points out that by banning banks, it'll expand the use of a "less regulated shadow banking system." Clearly, banning banks has many more cons than pros and the proposal, as in 1939, should be abandoned for good!
ReplyDeleteBanks create money by loaning out money. Contrary to what many textbooks say, "whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower's bank account, thereby creating new money." This new proposal that banks be banned from creating money would change the way banks make loans by limiting the amount of money that can be lent. In addition, Paul Krugman claims that this action may lead to "more financial activity happening outside the banking system, into the less regulated shadow banking system." Having less regulation can lead to more corruption, so it is probably better to let banks keep the power they have now.
ReplyDeleteBanks create money through loans. You see, whenever a bank makes a loan it is also creating a matching deposit in the borrower’s account, thereby creating money.
ReplyDeleteBanks receive deposits into accounts and are required by the Federal Reserve Banking law to keep a certain proportion, currently 10%, of what is deposited into these banks at all times. In other words, this leaves the bank with a remaining 90% of deposits to lend out and collect interest on.
This new proposal to ban all banks would change all this. One must understand that banks are important to our economy. This proposal will diminish all expansion of the money supply, hindering our economic prosperity.
Paul Krugman believes that if we were to follow through with the proposal to abolish the banking system, it will cause a “less regulated shadow banking system.” He also raises the notion that the problem may lie deeper than financial stability. Now, tell me if I am wrong, though I don’t believe I am…but I think maybe keeping banks around is a good idea.
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ReplyDeleteThrough loans and interest rates, banks are able to create money. When these banks receive deposits, the Federal Reserve requires them to only have to keep about 10% of the money in a vault. It is through using the other 90% of the deposit that banks are able to create money. All they have to do is simply loan out money that isn't really theirs on interest to create money. This new proposal to ban banks would stop these institutions from making risky investments, therefore preventing the need for government bail outs. The loans would be simple, and instead of acting to profit, banks would be a place to simply hold money. Paul Krugman fears that this proposed banning of banks would create more "shadowy" banking systems that act in disregard to regulation. Krugman even questions if this issue goes further than just instability and has deep rooted issues elsewhere.
ReplyDeleteBanks create money by lending out money that do not have in their vault. If the change takes place, banks would still be able to act as lending intermediaries. For example, deposit accounts such as CDs would be a legitimate source of loanable funds. John Cochrane argues that banks could still be in the business of originating mortgages and loans, but that they could be financed by other authorities. Or there could be lending institutions that are 100% financed by equity and debt (not by deposits) thus insuring that those institutions not need a bailout. Paul Krugman is saying that the problem might run even deeper than financial stability if we ban all the banks, given that financial stability was restored in fairly short order once the government decided to make that a priority.
ReplyDeleteBanks create money through loans.
ReplyDeleteThe new proposal entails stripping banks of their right to create money. This proposal would cripple the United States financially, because there is not enough paper money to go around. Contrary to popular belief, debt money actually helps our economy and increases the money supply. The proposal is essentially a revival of the 1939 Chicago Plan, which presents a banning of banks in order to prevent them from taking risky loans. Initially, it seems like a good plan, however, in the long-run, it will be wholly detrimental to the economy. By retracting the banks' right to create money, we will destroy the system that regulates our money supply. Without the existence of "fake" money, the United States would be economically in trouble. Paul Krugman points out that abolishing banking will result in a "less regulated shadow banking system". Paul Krugman also adds that there are problems with not allowing the banks to create money. Krugman also raises questions of complexity, and whether the problem runs even deeper than financial stability. All in all, banks should most definitely keep the power they have now.
Banks create money buy issuing loans. Of course a bank doesn't have enough money to go around for everyone, so they issue loans with money that they don't technically have. By creating a loan it makes a matching deposit in the borrower's bank account, and creates new money. If the new proposal that disallows banks to create money then the banks will not really be able to make loans with money they do not have. But banks would still be allowed to act as lending intermediaries. Such as CDs would be a source of loanable funds. Krugman argues that banning banks would just cause more financial activity to be less regulated.
ReplyDeleteBanks create money by lending out money that is deposited by individuals, by issuing loans. They lend out money that is not really considered theirs. The new proposal that banks be banned from creating money would limit the amount of money allowed to be lent out to individuals and businesses. This will alter the circulation of money drastically. Paul Krugman also states that this might actually lead to more financial activity happening out of the banking system. With the less regulation, it can lead to much corruption causing it to go downhill from there.
ReplyDeleteBanks make money by making loans. When a bank makes a loan, money is made. Therefore, banks loan money to make money. Banks are currently limited by how much money they can make by the amount deposited in the bank, which is called the reserve requirement. This keeps banks in check and ensures that they do what they were made to do. The plan outlined in the article, the Chicago Plan, seeks to end banking and the creation of money. This is a pretty awesome idea. Banks are pretty bad in general and do a lot of bad things. Some people think that money is important, but people don't recognize that humanity would adapt to live in a system without money if the banks were shut down. Perhaps the current global economy would collapse, but at the end of the day the human species would be better off. The economy has become a monster, and it's time for that monster to be slain. Paul Krugman says that people would just create an under the table version of banking that's less regulated, but what Paul fails to understand is that the economy would collapse so quickly that we wouldn't have to worry about corruption.
ReplyDeleteBanks create money by issuing loans. At the same time a bank issues a loan, a matching deposit is created into the borrower's bank account and thus new money is created. The misconception is that loans are created from deposits, but in fact deposits are created from loans. Monetary policy is to regulate and limit the amount of money banks can create through this process. By following through with this proposal and banning all banks, we would demolish the infrastructure that we have to create money. As the country and it's economy grows, the money supply would increase by approximately 3% each year, however if banks are banned this constant growth of the money supply would end. I think we would find ourselves in some trouble. The fact that we have banks is beneficial because it is regulated and controlled, it's not like is wild. This goes along with what Paul Krugman says with the idea that there will start to be more financial activity outside the banking system. This unregulated financial activity would lead to corruption and even more problems that we currently already have.
ReplyDeleteOne of the many ways banks create money would be by issuing loans. When banks receive account deposits, they are required by the Federal Reserve to keep a certain amount in their vaults. Most people think that loans are created from deposits, but it is really the other way around. This new proposal would destroy the infrastructure on how banks create money, and the money supply will soon decrease because of the decreasing amount of money being created. The main thing Krugman pointed out was how there will be more financial activity taking place outside of the banking system. This will lead to corruption most likely because of how it is not as regulated as the banking system.
ReplyDeletecreate money using debt. They give out money that don't have in hopes that it will be reinvested into their company and in the end the money is always with the bank as it gets bigger and bigger. If we ban all the banks then we will lose our money supply. Without debt we have no money. Only 5% of the money that we have is made in the mint. We need banks and we ultimately need debt
ReplyDeleteBanks make money by making loans. So basically banks loan money to make money. By creating a loan it makes a matching deposit in the borrower's bank account, and creates new money. If this new proposal goes through, then the banks will be very limited with the loans they are able to make. This is mainly because they won’t be able to loan out money that they don’t actually have. One of the main things krugman states was that banning banks from creating loans will just increase the level of financial activity outside of the banking system, and most likely it will be corrupt.
ReplyDeleteBanks create money through loans. Banks receive deposits into accounts. From those reserves, they are required by Federal Reserve Banking law to keep in their "vaults" a certain proportions of what is deposited into these banks, which is about 10%. This means that the remaining 90% can be lent out on interest to create money in the market. However, this new proposal to ban all banks will diminish all expansion of the money supply. Paul Krugman claims that abolishing banking will result in a less regulated shadow banking system. But I don't think that will affect me much personally so I don't care. And if they are unregulated, wouldn't that make a larger money supply? I guess the banks would be underground though and their loans would have to be cash or it wouldn't be payable. I'm not entirely sure what kind of shadow banking he's talking about. Like if it's loan sharks or if it's places that can accept credit as payment. If some people were to illegally set up an online banking system without regulation, the money supply would go up because they don't need a reserve. I think if we made credit illegal it would have awful short term effects but wonderful long term effects. If everything could be payed in cash. I hope I stayed on the right track of the question but I probably didn't. Oh well. Goodnight. I'm sleepy.
ReplyDeleteBanks create money through loans. Banks receive deposits into accounts. From those reserves, they are required by Federal Reserve Banking law to keep in their "vaults" a certain proportions of what is deposited into these banks, which is about 10%. This means that the remaining 90% can be lent out on interest to create money in the market. Though the revival of the 1939 Chicago Plan--which advocates the banning of banks in order to prevent them from taking risky loans--may seem like a good plan, in the long-run, it will be detrimental to the economy. Paul Krugman also states that this might actually lead to more financial activity happening out of the banking system. With the less regulation, it can lead to much corruption causing it to go downhill from there.
ReplyDeleteWow! Ban all the banks! people must be getting prretty tired of banks to propose an idea like that one, Banks create money with the deposits that you lacein the bank, they will use that deposited money to create loans for people wwho need a loan, like a mortgage loan or car loan,the bank digitally (almost like magic) credits your account with the amount you need to pay for the home.The new proposal will limit the amount of loans a bank can make.we most lokely wont be able to do the proposal becasue the final sytem in america is very unstable. also there will be many banking happining outside the u.s. which in turn might hurt our economy.
ReplyDeleteBanks create money through debt, or the loans it gives people from money it magically (digitally) adds to someone’s account as credit. Banks nowadays serve as businesses that operate to create money instead of acting as a financial intermediary between depositors and borrowers. When a bank makes a loan, they do it with money that does not exist but will in the future, making a profit off the interest on the loan. There is a limit to how much they can lend out, depending on how much they must keep in the bank, which is called the reserve requirement. This current system has basically outsourced the creation of money from the federal government to the banking system. The new plan proposes that banks should be banned from creating money and the government takes over the operation in order to make the financial system safer. They claim the banks are what led to the destabilization of credit bubbles and busts. Since the government is who has to step in and bail out banks when they screw up, they say that banks should be in charge of money creation anyway. Wolf wants banks to be depository and payment institutions without the ability to create money. This idea was basically already proposed in 1939 after the Great Depression. Paul Krugman points out that this will probably lead to more financial activity outside the banking system, in a sketchy less regulated system. He also says that this system may be deeper than financial stability.
ReplyDeleteBanks create money out of magic beans and faith trust and pixie dust... okay just kidding. Banks create money where there is none in the form of a loan. A few clicks on a computer and money has been created. It seems to me that America has produced yet another fabulous mind to come up with fabulous ideas-- like banning all banks. I mean, if you ban all banks, then there will be none to make loans, and therefore stunt the expansion of the ever-growing money supply. Even Paul Krugman agrees that this "fabulous" idea needs to be put to rest: unregulated financial activity will inevitably occur and cause much more corruption in the monetary system than we already have. People seriously need to study economics. Shutting down the banks... as if!
ReplyDeleteBank is able to make money by creating debt. This process has been going on since the beginning of time and it has created so much debt in our system. The bank is able to make a profit from the interest from the money created, thus allowing them to continue make more money. The new proposal, banning all banks, has some major flaws. If banks are banned, no one would be able to make loans and this would halt the economy bascially. Krugman states that this new idea shouldn't happen since it would only make the economy worse. Money would be unregulated and it may reach a point where money is just a piece of paper and holds no monetary value.
ReplyDeleteBanks create money through loans. They receive deposits into accounts, and from those reserves, they are required by Federal Reserve Banking law to keep in their "vaults" a certain proportions of what is deposited into these banks. That is about 10%. This means that the remaining 90% can be lent out on interest to create money in the market. However, this new proposal to ban all banks will diminish all expansion of the money supply. Banks are a huge part of what pushes our economy. Paul Krugman claims that abolishing banking will result in a "less regulated shadow banking system", according to the article. The last thing we need is a lack of regulation.
ReplyDelete