Admit it, you got wood just like Randy from South Park watching this~
Ill rhymes with bill, would make anyone ill; Reservations required, a la'Cafe on the Hill.

@NetRunner

I think the difference in our concept of what's going on is that my understanding is that commercial banks can make a reserve deposit at any Fed branch and then make loans against that. From what I can tell, there isn't any math done like you're describing. Maybe if you want to make a new bank or long ago when some of these banks were created there was math like that, but there isn't anymore. There is simply a minimum number required to have on reserve deposit or in vault cash compared to how much you have loaned out. This is all not to mention that there are types of deposits which have exceptions to the reserve requirement. That alone makes sure banks are loaning more than they have (if they want to take the increased risk).

http://en.wikipedia.org/wiki/Reserve_requirement#United_States

I mean, if putting $100 in a Fed reserve bank and loaning out $900 based on someone's promise to pay isn't creating money, I don't know what is. You don't have to start out with $1000 to make the $900 loan once you're already a commercial bank. That's the point. If you make money on some investment, you can make loans and collect interest against your increased profits. You don't have to have the money and then hold 10% back. (Glass-Steagall, anyone?)

Plus, the money that comes in as interest is money that never existed in the money supply before the loan was created. Someone else has to borrow money to pay you in order for you to be able to pay your interest. This is why growth is required to pay interest and avoid foreclosure and default. If the money supply does not increase and more people aren't promising to pay interest, other people won't be able to fulfill their promises to repay. That's why the system requires growth to function well.

Legal tender law and fiat currency make sure that everyone must participate in the system at some point, or your contracts won't be protected by the courts and you won't be able to pay your taxes, since both only deal in dollars.

@NetRunner

See, that is indeed where our understanding differs. Any bank may create money, not just the Federal Reserve. The Fed is the only agency that can literally create it from nothing. All other banks in the system create demand for it based on the fractional system. They may only loan money based on the reserve ratio.

So, yes, banks want depositors because the amount of loans they can issue (and therefore the amount of incoming interest they can collect, which further becomes more money they can lend) is partly based on deposits. But, as your Wikipedia link points out in #6 of the process, "when a loan is granted, the person is generally granted the money by adding the balance to their bank account." They don't mean "instead of giving them cash or gold". They literally mean "granted the money"...the money is created in their account. Money which did not exist prior to the loan agreement.

So the bank gives you $10,000 while holding $1000 in reserve (10% reserve requirement). The bank also creates a $10,000+interest hole for you to fill and generates a monthly payment bill. At no point did the bank have $10,000 to give to you...as in, if you marked every dollar in the economy with a serial number dependent on who created it, they would all say "i was created by the Fed at the request of bank XYZ to pay out loan money to someone because they don't have it on hand". When you pay back your loan, the bank destroys the "hole" it created for you, but keeps the interest on the bank's balance sheet.

When someone cashes your $10,000 check, the bank then transfers $10,000 to that person's account, but that $10,000 is available partially because of deposits and partially because of incoming interest payments from people with outstanding loans...or other bank profits from investment or whatever. If the bank has $1M on deposit, they can create $10M in loans TODAY, and if each of those people all request cash immediately, the bank will not have it on its balance sheets. But, the Fed is allowed to create cash from nothing to pass on to the bank for the purpose of fulfilling these withdrawal requests. Yes, it does seem incredible. Yes, this is why people don't like fractional reserve banking.

So, even though the Fed is the one supplying the actual cash, it is the banks who are creating the demand for the newly created money. This is how banks loan more than they have...based on how much they have on depost with the local (or central, in the case of commercial banks) Federal Reserve branch.

We're saying a lot of the same things, but there is a difference.

EDIT: this is also the reason I belong to a credit union

The only downside to flushing those $1.6 trillion down the toilet is a surplus of reserves on the market, possibly fueling some inflation in the (near) future. And he's correct in pointing out that with high unemployment and therefore stagnant/falling wages, the risk of runaway inflation is negligible, if not downright non-existant at this moment. In any case, raising the reserve requirement to suck reserves out of the market works just as nicely as buying them back.

People argued that it's just an accounting trick. So what? It's debt owed to yourself, interest paid to yourself through the treasury. Core inflation is low as it is, arguably even too low already. It's easy, simple, straight-forward; any reason not to do it?

But are people really against raising the debt ceiling? It's just an arbitrary number that has been raised over and over again, it has no meaning. The deals that might come along with it this time, those are fucking scary. And it's not just the Republicans, Obama is right up there on the frontline, pushing for even more radical cuts to Medicare spending and Social Security, as this article shows.

As for reducing the double mandate to stable prices only: look at the ECB. Those shitheads are even worse than the Fed in that regard. They take an additional 5% unemployment over an additional 0.5% inflation any day.

Wankers, the lot of 'em.

You're oversimplifying it. The Federal Reserve is a union of private and public interests, and it is controlled by the government-appointed Board of Governors, which is mandated to help economic growth while keeping inflation low. The FED changes the money supply through three major tools, which are controlled by various parts of it:

-The reserve requirement, or what percentage of reserves a bank must keep with them. This is at 10% right now and it is controlled by the Board of Governors (though it is almost never changed).

-The discount rate, the interest rate for loans from the Federal Reserve. This is changed by member banks in the FED, but all changes must be approved by the Board of Governors.

-The federal funds rate, the rate for overnight loans between member banks. This is the main tool that the Federal Reserve uses to adjust the money supply, and it is controlled by the Federal Open Market Committee (FOMC). The FOMC is made up of the Board of Governors and the member banks.

The Federal Reserve is primarily controlled by the Board of Governors, appointed by the president and confirmed by Congress. It is accountable to the public. Also, this is a little known fact. The FED only has control over 6% of the nation's money supply. It operates more psychologically than with true power.

The nation still suffered recession and economic downturn before the Federal Reserve, along with bank failures. The Federal Reserve was really only complicit with the Great Depression, but that doesn't mean it messed up on purpose. No one except Scandinavia benefited from the Depression. Why would the FED be so incompetent in advancing its own interests?

Finally, the original Banks of the United States were very different from the modern Federal Reserve. It was completely privately owned, and it actually was partly controlled by international bankers. It was actually a bank for the government and other financial interests. But Jackson's killing of it helped cause the Panic of 1837 and a five-year long depression.