This income was effectively generated by banks via the act of lending money to individuals like you and me. In 2017, banks earned over one hundred billion dollars alone from the interest payments on credit cards. On the other hand, it is arguable that this loan system is making individuals poorer while simultaneously making banks wealthy, which is one of the mistakes that our present financial system produces. As part of this two-part series, we will discuss the process by which banks generate revenue and investigate an alternate approach to the current monetary system. one that enables the whole populace as opposed to merely the financial institutions. how financial institutions generate profits Let’s say you are a teacher and your most recent paycheck was $1,000. Let’s pretend you made that amount. After you have deposited this sum directly into your savings account, you will need to reload the page and verify that the money is truly there in the account. a thousand dollars’ worth of happiness is what you’re experiencing right now. In what way is it problematic? Nevertheless, the bank does not just store this one thousand dollars in a secure vault and wait for you to take it out whenever you feel the need to. This would result in financial losses for the bank. The bank, on the other hand, will take the $1,000 that you placed and lend it out to other individuals. It is possible for this “other” set of individuals to spend that money (yours) to purchase the items that they need. In the end, they will pay the interest costs that the bank charges for utilizing your money (making you a money-making machine). As a result of having more money available to lend out, banks are able to generate more revenue (think credit cards, loans, lines of credit, etc.). as well as the fact that this works incredibly well for banks, who have even gone one step farther with it. taking part in the game In the banking industry, there is a game known as “fractional lending,” which is essentially the concept of producing replicas of the money that you deposit. In the “fractional lending game,” the bank has the ability to go to the magic scanner and change $1,000 into another $10,000. This occurs after you put $1,000 into the bank. in a single instant, from nothing at all. as they deem appropriate. as they deem appropriate. They will take the money that you have placed and mysteriously multiply it by five or ten times in order to provide more funds to other individuals who may be in need of loans. After that, they will get interest on each dollar that you deposited as well as each dollar that they generated using the magic scanner from your deposit. Banks are able to generate money from two different sources in this manner. However, this “game” is a game that can only be played by banks since if you and I attempted to create our own money, we would be arrested and sent to prison (to learn more on the effects of printing unlimited amounts of money read this blog post). The ability of banks to maintain the fractional lending model is made possible by the extraordinary capabilities that they possess as well as the strong connections that they have with officials in the government. However, this comes with its own set of repercussions to consider. The architect of “the bitcoin standard,” Saifedean Ammous, makes the following statement: “Having the capacity to create money, both literally and symbolically, boosts the authority of any government, and every government strives for anything that offers it greater power.” According to the statement, “banking has developed into a business that delivers revenues without risks for bankers while concurrently creating risks without returns for everyone else.” When we meet again, we will find out how individuals such as yourself and I come to pay the price when banks function according to this paradigm. as well as the ways in which it impacts the whole of our economy and the social fiber of our society. So make sure you remain tuned.
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