Forget the “banks make money from thin air” assertions at the beginning of this video, but watch the cartoon rendition of the creation of the modern-day banking system for an understanding of how banks really work.
While it is true that the dollar is no longer backed by gold (in 1933, President Franklin D Roosevelt suspended the standard and revoked gold as universal legal tender for debts), just remember that each George Washington is still backed by “the full faith and credit of the United States government” … now that should be enough comfort for anybody 🙂
Mildly entertaining but fundamentally wrong in this day and age. Today’s banks do not have the ability to create money out of nothing – everything that they lend out is derived from a combination of shareholders’equity, deposits and money obtained from financial markets. (The multiplier effect is another matter.)
The days when the likes of Andrew Dexter could quite literally use a bank charter to print money are long gone. In most countries only central banks can create money out of nothing today.
@ Trainee – Yes, banking IS backed by money, subject to leverage … that same leverage (in principle, not in ratio) that saw a number of investment banks only recently bite the dust 😉
How can you say Banking is backed by money? what money? we don’t use the gold standard anymore, so Paper Money is effectively fake(not backed by anything at all.Only the perception of its value,which fluctuates with the public’s current views(which are affected by a mirad of factors).
@ Steve – LOL. Good point. No, it’s money that isn’t backed by anything other than the “the full faith and credit of the United States government” … but, as long as the US stands, the dollar is cash-able.
Banks, on the other hand, are backed by only a certain % of dollars … the rest of your money is backed by the hope that the bank doesn’t fail + any FDIC insurance + any help that the government may (or, may not) deign to provide in the event of a disaster.
BTW: in Australia, the gov’t acted to GUARANTEE 100% all bank deposits during the global financial disaster … counter-intuitively, it’s only DURING such a disaster that we (us Aussies) can feel that our money is as secure as the nation 🙂