JustAManOnAToiletJPMorgan CEO Jamie Dimon warns the world isn't ready for 7% interest rate
Yeah, I don’t really understand why they keep raising rates. It’s just another form of inflation for consumers.
Bank profits inflate the money supply.
If banks hold 100% of the money and lend it all out x10 (fractional reserve) and earn 1% interest, the money supply is growing by 10% per year.
That’s inflation. All that money goes to the banks.
That doesn’t even account for the stock market and other speculative devices.
When business and the wealthy class get richer, they want to get even RICHER. Prices rise. Which drives record profit, which makes rich people wealthier, which causes the cycle to repeat.
Raising interest rates is SUPPOSED to make people uncomfortable and stop spending. It’s not working yet, because literally EVERY INCENTIVE IN OUR SOCIETY is pushing people to spend spend spend.
There is no functional market force driving down housing costs, food costs, or education costs. Unchecked capitalism can’t work.
We just need proper incentive structures and regulation. But seeing as nobody has the guts to start figuring that out, the only lever we have is interest rates.
So they’ll keep going up until something breaks.
FuglyDuckOne obvious solution that’ll never happen is simply getting rid of fractional reserve banking.
Make it do they have to have it, to be able to loan it
Make it do they have to have it, to be able to loan it
The banks do have to have it to be able to loan it.
Fractional reserve says that they're not allowed to loan all of it.
So if you deposit 100k at the bank and there's a 10% fractional reserve. Then they're only allowed to loan 90k.
Now you might ask, so if the bank can only loan 90% of the money they have where does the money multiplier come from?
If person A comes and deposits 100k, and the bank loans 90k to person B. Then there's still only 100k in cash, but now there's 190k in bank accounts.
So every time someone comes in to deposit 100k, they loan out 90k. Once they've got 1,000k, they've loaned out 900k and keep 100k cash in reserve.
The important difference here is that loan only happen when there's a borrow. And there are strict regulations about how reliable those loans can be. Which is why they tend to require collateral.
So, really when a bank has 1,000k in people's account, it only has 100k in cash. But it also has 900k in houses, cars and furniture.
The whole system ends up stabilizing the value of money because it is backed by real tangible things through the loaning and collateral system.
I also think it helps to keep money at a stable but small rate of inflation (1-2%). Otherwise people will just hoard the cash instead of growing the economy in the form of investments. But I don't know what the literature says on that topic, or how reliable that literature is, in practice.
My point is, getting rid of the whole system just because it looks complicated to you seems like a terrible idea.
Like our focus should be on breaking up monopolies, progressive taxation and a solid well funded social support system. I think it's safe to leave the management of the money supply to the bean counters for now. It's clearly not perfect but it's not bad either.