I think a lot of folks have a fundamental misunderstanding of how loans work. The banks don't get to just magically conjure up as much money as that want. It is backed by actual money/assets and federal regulations require a certain ratio between what the bank has loaned and the amount of money they have readily on hand.

I agree that it's not a perfect system, and I definitely think "businesses" that offer those sketchy payday loan arrangements should be illegal, as they often price gouge the shit out of the interest rates (in fact, I believe many states have outlawed them). But I don't know of a better solution that isn't dependent on a utopian-esque idea.

[–] TrickDacy@lemmy.world -3 points 11 months ago (11 children)

You are incorrect. Banks do create money from nothing. And I don't know if it's unlimited but I'm not sure why it needs to be unlimited to feel weird and/or unfair.

[–] bassomitron@lemmy.world 2 points 11 months ago* (last edited 11 months ago) (10 children)

That is not true. This is typically how bank loans work: You make an account at a bank and deposit, say, $1000. Before 2020, the Fed would require the bank to retain something like 10% of that $1000 (just using 10% in this example, I haven't looked up what the ratio was pre-2020). So they'd deposit $100 of your cash to keep on hand and could then loan out the other $900 to those seeking a loan.

However, the Fed set that reserve ratio to 0% in 2020, which is idiotic in the long-term and also likely a main contributor several banks collapsed in 2022/2023 as the Fed started raising interest rates (I'm no economic expert by any means, so I could be wrong on the main contributing factor).

I think you're mixing up regular banks with the federal reserve, who definitely can just print money out of thin air.

[–] Gabu@lemmy.ml 1 points 11 months ago

Can you read what you just wrote?

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