Hi, genuine question here. May seem silly, and I've asked a fair amount of
People over the years and no one has ever given me a factual definitive answer.
"Does a country (any country) need to have gold bullion in the bank to print the equivalent amount of physical money?" I'm guessing it doesn't. And so if not, how do they calculate how much money to print?
-and what would happen if the whole country went to the bank to get ALL their money out in cash?
Surely there are more digits on computer screens representing cash than actual cash in any given country? (Except possibly third world countries?)

Unhook3d said..
-and what would happen if the whole country went to the bank to get ALL their money out in cash?

novewtti has provided a very good answer to your few questions. I shall try to answer this one.

Remember the recent Greek financial crisis? Did you see the long queue of folks lined up to withdraw their cash deposits? The banks had to ration how much each person can withdraw, even shut their doors!

A hypothetical example:
Lets say you kept $100,000 of your hard-earned cash in the CBA bank. The bank then lends $30,000 to businesses, and $30,000 to home buyers. So effectively the bank only has $40,000 liquid asset, ie. cash. If you walked in and asks for the full $100,000 back, it will be impossible because most of the $100,000 had been loaned out to generate profits for the bank. The bank can't ask for the money back from the borrowers because it is just not done.

Such mass withdrawal is called a "run on the bank". It happens when confidence in the financial position is up the ** creek, and people panicked !

Interesting questions. In short your first question - no. It's been decades since you needed real assets to print money as a nation. That's what banking used to be in the distant past. You gave the bank your bit of gold for safekeeping and they printed a bank note for you to honour your deposit.

Did you know that when someone borrows $1 in the US the banks and central bank can go out and print money to lend to other people to cover the borrowings? The interest from those debts creates money out of nothing. The problem is if the security does not equal the debt once called, you have an issue like the 2008 GFC. That's one way money is created out of thin air. Another less conventional way of raising capital is to buy the assets in banks, this artificially increasing their value and then flooding the market with liquidity. This is QE. It's a scam of course particularly in the US where the US Fed Reserve which is controlled by private banks, purchases other bank's assets and then creates liquidity out of that. Great scam. Another is higher risk leveraged funds. What you have is a bunch of leeches feeding off humanity and using the excuse that usury is the best option we have - well for those in a position to print money out of thin air - yes it pays for their 100 foot yachts in Monaco..

I think in the very near future we will find out just how bad the books really are. Starting with Europe and then the USA or Japan.

The nature of usury, printing money (or the sanitised propagandist version Quantitative Easing), out of control leveraged hedge funds and crook central and merchant bankers all add up to an unsustainable system. Debt, by its very nature cannot simply continue to increase, just as the earth has finite resources. The orthodox market approach to a debt problem is to create more debt. The irony is that their big concern is inflation pressures - rather than the fact that more unsustainable debt is created! Dreaming.

At some point, the debts will be called and the ultra wealthy 1% who control about 90% of the world's real wealth (that's once you've settled debts against assets) will have to answer to the whole of humanity for their dysfunctional system.

But fear not, if there's a problem just lend more and print more cash out of thin air.

What a gorgeous day. I think it's time for a swim.

Adriano said..

What a gorgeous day. I think it's time for a swim.

A better option than worrying about money Adriano.

In the early '90's? W.A's "Rude and Ignorant" bank was short of cash for some reason - there was a scare of some sort and they had a "run"

At the time, I had about 6k in the bank - and needed to pay for a new engine and associated bits, needed to withdraw around 1.5k.

Walked in to my local R & I, and the teller refused to honour my withdrawl.

After working my way up the food chain, I eventually ended up sitting in front of the bank manager - who refused to allow me access to my cash.

I picked up his phone - called Scarborough police station and started reporting a robbery at the bank.

Within seconds, my cash was in front of me

Next time I was in Perth, I swapped everything over to P&N.


stephen

sn said..
In the early '90's? W.A's "Rude and Ignorant" bank was short of cash for some reason - there was a scare of some sort and they had a "run"

At the time, I had about 6k in the bank - and needed to pay for a new engine and associated bits, needed to withdraw around 1.5k.

Walked in to my local R & I, and the teller refused to honour my withdrawl.

After working my way up the food chain, I eventually ended up sitting in front of the bank manager - who refused to allow me access to my cash.

I picked up his phone - called Scarborough police station and started reporting a robbery at the bank.

Within seconds, my cash was in front of me

Next time I was in Perth, I swapped everything over to P&N.


stephen

That's because banks and non-community union 'financial institutions' always put customers a distant second to profit. They pretend to do the opposite of course.