REPORT DEAD LINKS --- we can't keep this site up-to-date without your help
/ Google Poll Introduction / GP#1 / GP#2 / GP#3 / GP#4 / There is no GP6 or 7 / GP#8 / GP#9a / GP#9b / There is no GP#10 / GP#11 / GP#12 / GP#13 / GP#14 / GP#15 / GP#16 / GP#17 & GP#18 / There is no GP#19 / GP#20 / GP#21 / GP#22 / GP#23 & GP#24 / GP#25 / GP#26 / GP#27 ......... We are stopping our analysis at GP#27 because #1 to #27 covers most of the different ways that the phrase "Creating money out of thin air" is used.
This is #9b of our Google Poll -- this and the previous 9a are from the same URL -- so we numbered them the same and removed #10 / http://www.livescience.com/culture/081023-making-money.html
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Out of Thin Air: How Money is Really Made | LiveScience
Oct 23, 2008 ... Remaining banks have become scared of lending out money when there is no ... Creating money out of thin air may help in the short term, ...
You can check the original article at the link directly above.
The article author's words are in black here. Our analysis is in blue
Analysis -- this longish article covers more than creating money. In the part about creating money, it precisely repeats the error we tell about, in GP #1 above. That error was started by the Fed and is being continually spread, to our horror, by Wikipedia. < http://en.wikipedia.org/wiki/Fractional_reserve_banking >
See #9a too.
In the section of the article #9b, titled “Virtual cash”, it presents “Banks then get down to the business of creating money by lending it out. Assume that you put $100 in your bank account. The government requires banks to hold a certain amount in reserve, say 10 percent, so the bank may just take $90 and lend it out to someone else. That person can then buy something with the $90. The store deposits the $90 in another bank, and the lending process continues to inflate the original $100.”
That scenario seems more ridiculous every time we read it. Try it with your friends -- lend one of them $100 with the proviso that they have to lend $90 to another friend -- continue this with a chain of 10 friends and see if your group winds up with more than the original $100. If this works the way wikipedia says it does -- you and your 10 friends should jointly wind up with considerably more than $100. Some very serious people believe the nonsense.
By the way -- Wikipedia will not take this information down from their website -- probably because they got (or think they got ...) the information from a Federal Reserve Publication. They refer to “Page 57 of ‘The FED today’, a publication on an educational site affiliated with the Federal Reserve Bank of Kansas City) designed to educate people on the history and purpose of the United States Federal Reserve system. It is a .pdf document.
<< http://www.federalreserveeducation.org/fed101/fedtoday/FedTodayAll.pdf >>. Also see the following at Wikipedia (Note the quotation marks) “... An explanation of how it works from the New York Regional Reserve Bank of the US Federal Reserve system. Scroll down to the “Reserve Requirements and Money Creation” section.
Here is what it says: “Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000). In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of $500 ($100+$80+$64+$51.20+...=$500). Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity.” The link to this page is: http://www.newyorkfed.org/aboutthefed/fedpoint/fed45.html (that link appears to be dead (mrc)