It seems that the viewers are more indifferent of blech infotainment than sometimes stale serious journalism.

An entity that buys cheap and sells dear is called a business.

The difference in prices is called gross profit.

Gross profit is used to pay overheads: Buildings, staff, IT systems and in the bank’s case, the cost of holding reserves.

The remainder is called net profit (Used to pay tax and dividends).

I see that in addition to being arithmetically challenged you also require lessons in basic economics.

This one was free because I had to dumb it down a bit.

Saved to memory.

hence….

‘SS Shitanic’

I like 7 Shambles though.

How about… ‘Seven Sharp presented tonight by Three Dull cock-smoking blowhards’.

That little tale simply underscores the point alloytoo is making. There was no wealth created in the circular exchange of that note. It was merely the means by which a series of receivables and payables of equal monetary amount were satisfied within a group of people. The wealth arising from the original transactions had already been created and it was those transactions that gave rise to the corresponding debts between the parties that were satisfied by the transfer of the note.

The same outcome could have been achieved by the hotelier writing a promissory note or cheque that instead of being banked, was endorsed by each of the parties until eventually being returned to him. The group of people could also have achieved the same outcome by meeting in the bar and agreeing between themselves that they would offset the respective debts owed and receivable by each of them. They could have gone to their accountant and satisfied those debts by book entry. In each case, there would be no alteration of their net worth (except to the extent that the creditworthiness of another party was at issue); merely the effective offset of a debt receivable against a debt payable.

In fact, the irrelevancy of the note is also demonstrated by the fact that they could have all met at the outset and agreed to a series of bartar transactions where no money was to be exchanged. Instead, they could have jointly agreed that each would perform the services/provide goods in exchange for the services/goods supplied to them. Those bartar transactions would have created wealth.

My prediction:
If the ratings slide continues for 7Sharp, TVNZ will abandon a daily current affairs show completely, and put a cooking show/reality show on in the timeslot. They will refuse to go back to the old Close Up format.

By economic work I mean simple spending the money as appose to banking it. (no fancy esoteric economic meaning), if it’s in the bank you can’t spend it (for whatever purpose), and interest compensates for that.

The banks would be paying depositors interest on $500 dollars (per my example) and earning interest on $400.

I’m not sure what merit your point has.

Alloytoo – I’m interested in this ‘economic work’ – can you provide a link to a definition?
I would personally have assumed earning interest would count as economic work, yet you are clearly stating that is not the case.
With FR banking the multiplier is a theoretical limit determined by the reserve fraction (limit as per mathematical limit).
Interest can be earned on the original deposit times the multiplier (theoretically – admittedly it assumes infinite recursion of depositing to reach the full multiplier).

The point is the bank(s) can earn several times more than the interest on loaning out 80% of the original deposit.

Because there is never 5x the amount of money available to do economic work.

There is only at any one time a maximum of $100 dollars available, and thereafter less.

The money lent may add up to $500 dollars, but nobody can actually spend $500.

And Ross69, there’s an alternative version of that story that runs a bit like this:

It is a slow day in a little Greek village, planet earth. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner thinks about maybe beating the tourist to death, but decides to give him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and shoves it in his pocket. He owes Piraeus Bank down the street €100,000 but has little intention of repaying it as his business has been contracting for several years. That bank also has claims of €10,000 on a butcher’s business, €50,000 on a pig farmer, €75,000 to a supplier of feed and fuel, but in turn owes €100,000 to EFG Bank which itself has fractionally reserved claims on a pub owner and a prostitute who bought two homes on 105% LTV among many others.

At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, and asks for his €100 note back. The Greek innkeeper asks “what €100 note?” The German threatens to call the police. The innkeeper says “go ahead, ask for my brother who’s a Lieutenant down at the precinct, he’ll help you out.” The German storms out back into the night, €100 poorer. No one produced anything. No one earned anything. However, the whole village is still buried in debt and looking to the future with a lot more optimism at the thought that maybe the Germans really are that gullible.

With a hat tip to Zero-hedge for the story although it can be found at several places

If you can point out any error in my comment I won’t call you a cock-smoking blowhard.

One day the rain stops, the sun emerges, and a rich Russian tourist drives into the town square. He enters the hotel and asks to see a room with a sea view. The proprietor produces a choice of keys but asks for a 100 Euro deposit in case of loss. The Russian agrees and walks up the stairs to inspect the available rooms.

The proprietor immediately races around the corner to the grocer, and uses the 100 Euros to pay an overdue bill. The grocer now runs to the wholesaler with the money to discharge a debt of his own. The wholesaler owes money to a nearby farmer, so the money is now passed to him. The farmer also owes money, to the town prostitute with whom he has regular appointments, and with a happy kiss she accepts the money from him. But the prostitute also owes money – to the hotel owner, whose rooms she rents.

At exactly the moment that the prostitute is pressing the Euro note into the hands of the hotel owner, the rain resumes. The rich Russian descends the stairs and announces he won’t stay in the hotel after all. He returns the keys; the hotel owner returns the deposit; and the Russian drives away. Everybody in the town stands in exactly the same position that they did an hour before. But with debts extinguished, the mood has changed. The town’s recession has ended, and the townspeople can look to the future with confidence.

Once more for the arithmetically challenged.

If one persistantly cycles $100 through the fractional reserve banking system at 20% reserve one will after about 40 transactions be left with 1c cash in the economy and $99.99 in the bank as 40 fractional reserves.

The banks would have lent out $399.97 against deposits of $499.96.

Net money in the bank ($499.96-$399.97)=$99.99. Cash money in the economy 1c

Fractional reserve banking does not “Create” money it provides a market for unused money to be ‘rented’ to people who wish to use it.

That is why we pay interest, because we have the use of the money depriving others of that use.

Simplistically.

The reserve bank is mandated to create fiat money (money without gold backing) because the money in circulation is representative of the sum of the goods and services in our economy.

If the reserve bank creates too much money it doesn’t effect the intrinsic value of the goods and services, but it debases/devalues the currency resulting in inflation. Inflation hurts those with cash holdings and fixed incomes and encourages those with the means to borrow more (simply because inflation devalues their debt too.)

If the reserve bank creates too little money then the value of the currency increases, this is deflation. Deflation dampens economic activity because people expect things to be cheaper tomorrow and hence postpone purchases and horde money.

The US and UK have resorted to QE (expanding their money supply) in order to stimulate their economies because they have no other monetary policy tools available. This has debased their currencies vs ours.

Our currency has however remained relatively stable against currencies which haven’t been subject to QE. (Oz in particular), our inflation is low, we have moderate growth, and (relative to the rest of the world) low unemployment.

There is nothing fundamentally wrong with our economy especially when compared to the rest of the world.

And that $80 when banked can be used to lend another $64, which when banked can be used to lend another $51.20 etc etc.
Every time the money is banked it can be lent. Even if you spend it in a shop they’ll bank it at some stage.

Given a reserve level of 20% per your example, it is possible to multiply the original deposit by 5x with fractional reserve banking. If the reserve level was 10% it would be possible to multiply by 10x.

The money “created” by banks is actually the assets owned by its borrowers. Because they are not liquid then a bank can’t call them in.

Obviously you’ve never heard the term mortgagee sale.