One of the major reasons unemployment is so high in America

NLXSK1

Well-Known Member
Lack of capital for investment. People say that banks are not lending money. Well, then how are banks making money?? I can explain it to you.

Say a bank has 10 people who have 10,000 dollars in their savings accounts for a total of 100,000 real dollars. The US government allows the banks to capitalize at 19 to 1. What that means is that a bank can take 100,000 dollars of real money and treat it as if it is 2,000,000 dollars on paper.

Now, a bank can take that 2,000,000 mostly fake money and buy 10 year US treasury notes at 3% interest. The interest is paid for by the taxpayers of course...

What that means is that a bank can get a guaranteed 60% return on it's investment per year by simply not lending the money out and just buying treasury bonds.

In addition to that, the government has come out with 3,000 pages of new regulations on lending money. The banks dont need to hassle with any of the legislation if they simply take our tax money safe and sound directly from the government.

This is causing lack of investment capital which causes lack of opportunities for new job growth.

The government blames the banks for not lending after bailing them out to the tune of trillions of dollars and providing a mechanism where the banks are far and above compensated for NOT lending money to the citizens in America.

And the media wont even cover it...
 

GOD HERE

Well-Known Member
Lack of capital for investment. People say that banks are not lending money. Well, then how are banks making money?? I can explain it to you.
Just a warning to any considering reading this, you will be significantly less intelligent afterwards.
 

NoDrama

Well-Known Member
The government already passed laws making any money deposited into a bank as property of the bank. i.e. its not YOUR money anymore sucker. Depositors are now considered "unsecured Lenders".

We lend the banks money at 0% interest so they can turn around and lend it back to us at 3%
 

tokeprep

Well-Known Member
Lack of capital for investment. People say that banks are not lending money. Well, then how are banks making money?? I can explain it to you.

Say a bank has 10 people who have 10,000 dollars in their savings accounts for a total of 100,000 real dollars. The US government allows the banks to capitalize at 19 to 1. What that means is that a bank can take 100,000 dollars of real money and treat it as if it is 2,000,000 dollars on paper.

Now, a bank can take that 2,000,000 mostly fake money and buy 10 year US treasury notes at 3% interest. The interest is paid for by the taxpayers of course...
You misunderstand how the money multiplier comes to be. Starting with your $100,000 deposit, if the reserve requirement is 10% the bank only needs to hold $10,000 and can lend out $90,000. The $90,000 gets deposited into banks, enabling banks to lend out $81,000. Repeat, repeat, repeat through a couple hundred iterations and the $100,000 becomes $1 million in deposits. Without lending there is no money multiplier. $100,000 deposited in a bank and not lent out is just $100,000 sitting in a bank.

It should also be noted that this multiplier is system-wide. Depositing $100,000 in one bank does not enable that bank to create $1 million in credit.

What that means is that a bank can get a guaranteed 60% return on it's investment per year by simply not lending the money out and just buying treasury bonds.
You need only compare bank deposits to bank profits to see that this is absolutely false. If you use $100 billion of your deposits to buy treasuries at 3% interest, you only get $3 billion in interest income.

In addition to that, the government has come out with 3,000 pages of new regulations on lending money. The banks dont need to hassle with any of the legislation if they simply take our tax money safe and sound directly from the government.

This is causing lack of investment capital which causes lack of opportunities for new job growth.
The real problem is the lack of compelling investment opportunities. Banks make far more money on loans than they do on treasuries, assuming that loan losses are relatively low. If they believed they'd get repaid they'd make the loans.

The government blames the banks for not lending after bailing them out to the tune of trillions of dollars and providing a mechanism where the banks are far and above compensated for NOT lending money to the citizens in America.

And the media wont even cover it...
You'd have a better narrative with QE but it still wouldn't be very good.
 

tokeprep

Well-Known Member
I'll make an assertion about why unemployment in America and other developed countries is presently so high: automation. Say my factory has 1,000 workers earning $50,000 a year. In aggregate they'd earn $50 million a year and at that income level spend almost all of it, creating $50 million in demand for goods and services. Now let's say I replace 800 of my workers with machines. The remaining workers only have $10 million to spend; the $40 million in salary savings accrues to me, the factory owner, and possibly someone who lent me money to buy the machines. Maybe I do buy another house or go out to dinner more often, but most of my extra money probably just sits in the bank. The demand I create is not very significant compared to the demand of the 800 workers I eliminated, which means less employment.
 

BigNBushy

Well-Known Member
I'll make an assertion about why unemployment in America and other developed countries is presently so high: automation. Say my factory has 1,000 workers earning $50,000 a year. In aggregate they'd earn $50 million a year and at that income level spend almost all of it, creating $50 million in demand for goods and services. Now let's say I replace 800 of my workers with machines. The remaining workers only have $10 million to spend; the $40 million in salary savings accrues to me, the factory owner, and possibly someone who lent me money to buy the machines. Maybe I do buy another house or go out to dinner more often, but most of my extra money probably just sits in the bank. The demand I create is not very significant compared to the demand of the 800 workers I eliminated, which means less employment.
Maybe it is meant to be implied, but those 800 workers spent their money locally, and plenty of businesses were there to meet their needs. In a major city it can be absorbed, and probably hardly noticed. If it was in a small town, well that is how towns die.

My dad's hometown is almost a ghost town. In the 1960s and 70ss it was a thriving blue collar town, with plenty of good factory jobs. Now it is the center of poor white trash jokes in the area. Not only did the people working at the factories lose jobs when the factories closed, but so did the barbers, shop keepers (this town did not get a wal mart until 2005), really any local business is killed when the economic heart of a community is removed.
 

tokeprep

Well-Known Member
Maybe it is meant to be implied, but those 800 workers spent their money locally, and plenty of businesses were there to meet their needs. In a major city it can be absorbed, and probably hardly noticed. If it was in a small town, well that is how towns die.

My dad's hometown is almost a ghost town. In the 1960s and 70ss it was a thriving blue collar town, with plenty of good factory jobs. Now it is the center of poor white trash jokes in the area. Not only did the people working at the factories lose jobs when the factories closed, but so did the barbers, shop keepers (this town did not get a wal mart until 2005), really any local business is killed when the economic heart of a community is removed.
That's certainly my implication.
 
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