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| Wow. Since when did Bank's print money?
When a deposit is put into a bank, it becomes a liability on the bank's books. The money does not come from thin air, it comes from other entities in the form of paychecks, cattle checks, grain checks, etc. and is taken from the payor on the checks account and put into the bank's account at the fed. That liability needs to obviously be paid back to the depositor as they wish. On a large amount of these liabilities the bank will pay interest to the depositor. This is an expense to the bank. For a bank to be profitable, they must have an offsetting income producing asset for this liability and expense. Yes, they invest your money to make money for them, but need to have a certain equity capital position, etc. to be able to do so in order for the depositor's money to be secure. They can invest this various ways, but one way is to invest it by lending money to local individuals, businesses, farmers, etc. These loans become assets on the bank's books. They also utilize their own cash to lend out, but similar to feeding cattle, they have to maintain certain working capital to be able to stay in business. If the bank is short on loans from individuals and businesses (deposits) they may also borrow money from the fed to lend out, but only a certain amount as this is regulated. A bank does not take money from "thin air" and lend it out. The bank needs to have siginficant consideration in the form of assets and capital to be able to do this, which this requirement has grown tremendously since 2008. Also, if the bank makes a bad loan, it is the bank that takes the loss, not the depositor. It's the same business model that has been around for hundreds of years.
Edited by nwiafarm 7/30/2014 09:15
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Bankers and cattle prices
