Skip to main content

What is infinite money glitch? How does work fractional reserve banking system ?

  What if I told you that the entire modern financial system functioned on an infinite money glitch where billions, no trillions of dollars were created out of thin air day after day, and at any point the whole system could collapse? Oh, you. You wouldn't be surprised.    But what I just said was the truth, and it's something called fractional reserve banking, otherwise known as the Infinite Money glitch. Here's how it works. 



When someone deposits $1000 in the bank, the bank does not hold on to all of that money. Rather, the bank will just keep 10% a $100 as reserves and then loan out the rest or $900 to other people or companies charging interest on the loan. Making additional money for the bank, the Lendy, or the person that took out the $900 loan then goes on to spend that money. To simplify the scenario, we'll say that that person with a $900 loan immediately paid someone else that $900. At this point, when looking at this small financial system, there's a total of $1900 in circulation, but the bank only has $100 in reserves. But here's where the endless money glitch occurs, the person that was paid the 900 Dollars then goes to deposit the 900 in the bank again. Starting the process all over. The bank would keep 10% or $90.00 and then loan out the remaining $810. Then the person with the $810 loan would pay someone else, who then deposits that money in the bank and the bank then keeps another 10% loans out the rest in the cycle continues. This cycle of monetary multiplication is called the monetary multiplier effect or the infinite money glitch.


 In this example, $1000 in initial capital can be transformed into $10,000 in the economy, all from nothing $9000 created out of thin air. Add a few zeros to those numbers and you can start to understand how much money in an economy can simply be created through fractional reserve banking. This infinite money glitch occurs because banks only have to retain a certain percentage of deposit due to liquidity requirements. The rest of the money they can go out and make money death through lending. In practice, the system of fractional reserves can create an infinite money glitch if lending and borrowing becomes irresponsible and pervasive enough throughout the society. The infinite money glitch is also metaphorically the stacking of financial dominoes. If all of the depositors were to want their money back at one time, called a run, the bank wouldn't have the funds to pay everyone back. This is why government backed insurance like FDIC is a necessary protection on bank deposits.


 In simple terms, this is how the fractional reserve banking system works, and it's the system in place by most modern economies, including the US. The exact cash on hand requirements for banks in the US is set by the Federal Reserve. The Central Bank, which will often put banks through stress tests simulating potential bank run scenarios or financial collapse scenarios to ensure that a banking crisis doesn't occur. This level of safety is usually enough to ensure the infinite money glitch in modern banking doesn't unravel the whole system. 


Usually, China is currently seeing their fractional reserve banking system fall apart as real estate loans made on fraudulent real estate are crumbling. The fractional reserve banking system is susceptible to financial fraud or misrepresentation of loans, and if the bank lends out this infinite money thinking it's all going to trustworthy borrowers, then it assumes it will get most of it back. However, if all of the trustworthy buyers end up having to declare bankruptcy, then the bank is just out of luck and on the hook, this is what the stress test the Federal Reserve puts U.S. banks through tests. The Central Bank has default rate numbers that it simulates banks abilities to remain liquid through. However, when anomalous and unexpected default rates occur, usually due to fraud, the system can collapse. All of this, of course, is oversimplified, but it speaks to_the fundamental principle to modern banking, fractional reserve banking, and the infinite money glitch that it creates.


 

Comments

Post a Comment

Popular posts from this blog

Why the US government 30$ trillion owe?

  The United States is in a lot of debt. Currently the country owes $27.2 trillion. But who would even lend them that much money? Who does the US owe this massive sum?  Well, the answer to that is pretty simple. In large part, it owes itself that money, but there's also quite a few other countries it owes to. the US essentially owes two groups of people, the general public, which can be other countries or even investors in the US and itself. But before we get into who makes up those groups and what the percentages look like, first let's get some basics. Whenever the US government needs money, it raises that money through the issuing of savings bonds or treasury bonds. These bonds are basically pieces of paper that say the US will pay the person or agency that buys it back with a little bit of interest. Many people want to buy bonds because they're pretty solid investments, like banks, foreign governments, and maybe even you. The debt ceiling, which you may have heard about,...
Post a Comment
Read more

China really does not want war? Taiwan then whose? Why is Taiwan so important to America and China?

China is playing with peril. still, America will intermediate militarily to cover the island, If China invades Taiwan. This is what US President Joe Biden said during a meeting with the leaders of the Quintet in Tokyo on May 23. China is not sitting still. Beijing's Foreign Ministry prophet Wang Wenbin stressed that Taiwan is an integral part of mainland China. There is no room for concession or concession. Encouraging Taiwan's independence would be like playing with fire. This is what Chinese President Xi Jinping said in 2021. still, there would be nothing to worry about, If the issue was limited to such a war of words. The constitution also has a law on Taiwan called the Anti-Association Law, which states that if Taiwan does not unite with China, also China is naturally obliged to intermediate militarily in Taiwan. multitudinous international relations judges believe that if there is a war between China and the United States in the future, Taiwan will be the flash point of th...
Post a Comment
Read more

Who controls of our whole economic money?

  I'm gonna start this article with a quote. Henry Ford once said it is well enough that the people of the nation do not understand our banking and monetary system. For if they did, I believe there would be a revolution before tomorrow morning. I quote this because it encapsulates the fact that the contents of this article may be unsettling compared to the articles that I normally make.  I still feel compelled to make this article because I've been exploring the financial world for the last four years and it's definitely given me a more complete view of the world I want to share some of what I've come across with you guys. I'm also going to do a article about cryptocurrencies like Bitcoin in the future and to understand why Bitcoin and other cryptocurrencies may continue to rise. It's critical that you understand the contents of this article. I hope that you find this topic interesting and that inspires you to do your own research afterwards.  Now, with that sai...
1 comment
Read more

What is the meaning of the rate race?

It's complicate to calculate exactly when you joined the rat race. But rest assured you're in this race. Flash back the time of reading in class eight? Ahead of the education test computation Algebra figures doctoring all the complex formulas of wisdom Get up beforehand in the morning at the private instructor's house and study late at night. You must have spent a lot of time busy with work compared to your age? We all spent. At that time, the guardian must have said that this is a many further days. Life is peaceful and peaceful only when the education test is over. You have heard these words numerous times in numerous occurrences of life. Take the SSC test, you get freedom when you get to council. Life will be full of joy once you can get into varsity. Enter the job life formerly. Having fun with your own plutocrat is different. Have you heard of this?  Can you match the numbers standing at the end of the age clock? What do you think? Has life gotten a little easier after...
1 comment
Read more

Why money worth anything ?

  Money is arguably one of the most important things in the world. While happiness and joy might outrank it at least on your uplifting Instagram feed, money does seem to make things easier. When you actually stop and think about paper money, though, we're left with a perplexing conundrum. There's nothing inherently valuable about these banknotes, at least today. So why does money have any value at all? Over time? How paper money is valued has actually changed, so to understand how modern money is worth anything. First, we have to look back to the early days of paper money. In the early days of governmental currency, money wasn't paper. Rather, it was usually a coin made of a precious metal like gold or silver. The value of that money was intrinsic as the value of the metal that made it up. If you melted a gold coin down, you'd have the same amount of gold as the coin was worth. As this system of money became impractical, governments decided to come up with a new way of ...
Post a Comment
Read more

What are negative interest rates in economics? How does works negative interest rates?

  In most countries around the world, there's a central bank that has a number of tools at their disposal to influence the country's economy. One thing that the central Bank has control over is the federal funds rate, which is essentially the interest rates that banks charge other banks to lend money. This federal funds rate in turn, affects the interest rates that consumers may get on their loans. If a federal funds rate is low, then a bank can borrow money at a pretty low rate.  Meaning that it can also lend money at lower rates and still turn a profit. If the federal funds rate is high, then it costs banks a lot of money to borrow money, meaning that in turn they have to charge higher interest rates on loans to turn a profit. That's some simple background on the federal funds rate, but let's take a look at what the Federal Reserve or Central Bank can actually do if they adjust it.  Interest rates are one of the biggest levers that the Central bank can use to adjust t...
Post a Comment
Read more

What is the difference between index funds and mutual funds?

In this article, we're going to be discussing mutual funds, index funds. We're going to talk about the differences and how they work ? You could think of a fund kind of like a basket of stocks. Instead of trying to find the perfect company to invest in, you can invest in a fund which gives you exposure to a whole bunch of stocks. So if you invest in an individual company and it goes bankrupt or now you lose everything. This is where funds come in handy, kind of like the S&P 500, which gives exposure to the biggest 500 companies in the stock market. So a fund is a way for you to lower your risk by investing in a group of companies instead of just one. A mutual fund is a fund that's actively managed by a money manager, and now there's going to be a money manager who's going to be investing your money for you into a whole bunch of different companies. Mutual funds have the highest fees because now you're paying for a money manager to actively manage your money....
Post a Comment
Read more

The End of Doller empire !

The End of Doller empire!  Saudi Arabia is in discussions with China to price some of its oil sales in yuan, but as ties with Washington continue to be strained. Beijing and Moscow are diversifying. China and Russia have taken another step closer towards dumping the dollar and agreed to trade in their respective national currencies, the Russian ruble and the Chinese yuan. The End of Doller empire Hi everybody. the US dollar has been the most powerful currency in the world for 80 long years.  This reserve currency status gives the United States such unprecedented power over the world economy that can cripple the economy of any country within a fortnight. And because of this power, it has even dominated giant players like Russia and China. But you know what guys? This is where China and Russia have actually come up with a master plan to kill the dollar dominance in the world. And if you look at the past 10 years data, you will see that it's actually working out quite well. In 19...
Post a Comment
Read more

What is a stock split?

When you enjoy stock in a company, you enjoy a portion of the company itself. When that company makes further plutocrats and the stock price goes up, you can make plutocrats by buying and dealing with the stock.  But what happens when the company decides to do a stock split? And why would a company indeed want to resolve their stock in the first place?  Stock splits are when a company divides the share of its stock into a multiple of generally two or three, but it can go as high as 100 or indeed 1000. So if a company had 1000 shares on the request, a stock split would turn those shares into 2000 or 3000 shares generally. And if you possessed one share at the time of A2 for one stock split, you'd all of an unforeseen own 2 shares of the company but the price would also be cut in half. unyoking a stock does not add any value innately. It's not a way for companies to just double their request cap. So why would companies do this just for fun? Well, unyoking a stock and therefore p...
Post a Comment
Read more