If we are so much in debt why do banks keep lending money?

weightloss_acc
weightloss_acc Posts: 109 Member
in Chit-Chat
?

Replies

  • Ironandwine69
    Ironandwine69 Posts: 2,432 Member
    What debt are we talking about?
  • weightloss_acc
    weightloss_acc Posts: 109 Member
    The us is suppousbly in debt
  • pinuplove
    pinuplove Posts: 12,871 Member
    edited May 2017
    .
  • Allgaun
    Allgaun Posts: 222 Member
    Because you are making minimum payments. Credit card companies love getting that 20+% interest. You're paying for this weeks groceries for the next 10 years so it's not good for you. Just cause they offer doesn't mean you have to say yes.
  • BrettWithPKU
    BrettWithPKU Posts: 575 Member
    Banks lending money to individuals has nothing to do with the national debt.

    I'm guessing something in MFP's terms prohibits talking about politics? (So I'll stop there.)
  • BrettWithPKU
    BrettWithPKU Posts: 575 Member
    If YOU are in debt, and wonder why the banks keep lending you money, two words: Dave Ramsey.

    Financial Peace University is a 9-week class about how to handle money and get out of debt. Classes are held all over the country.
  • marelthu
    marelthu Posts: 184 Member
    weightloss_acc wrote: »
    ?

    Because they and their shareholders are making crap loads of money.
  • JeromeBarry1
    JeromeBarry1 Posts: 10,179 Member
    edited May 2017
    Speaking of the U.S. federal government, debt is a complex subject. There is the the debt that is held by the public, which is known and accounted for in the books, and there is the debt obligations to the future, as Social Security payments to those who are presently young, which is not accounted for in the books.

    Of the debt held by the public, it is important to realize that the vast majority of that debt is held by other national central banks and sovereign wealth funds.

    Of that debt, it is important to remember that interest is paid in the same currency in which the debt is denominated.

    Of that currency, it is important to remember that the same government which sells the bonds also prints the money used to pay the interest.

    As the total U.S. debt held by the public has grown larger and larger, the relatively smart people managing the various other national central banks and sovereign wealth funds have actually stopped purchasing new U.S. debt.
    When this happened, the relatively smart people managing the U.S. Federal Reserve decided to 'expand their balance sheet', which is central banker jargon for 'create money out of thin air' to buy the U.S. Treasury debt offering.

    This has the U.S. now in the situation of the U.S. Federal Reserve being the single largest holder of U.S. Treasury debt, and the single creator of U.S. dollar currency.

    This has every ingredient necessary for hyperinflation, as the U.S. is printing money to buy bonds from itself which sells those bonds to raise money to both pay current spending and pay off old bonds. Yet, we have no hyperinflation. What's happening? There is an answer.
    The 12 branches of the U.S. Federal Reserve are holding the bonds from the ever-expanding balance sheet, printing the money to buy more bonds, which money is then used by the U.S. Treasury to pay the coupons on the bonds, which money is then used to pay the wages of the the employees of the Federal Reserve. In effect, the only wild exchange of all the fake money printed by the U.S. Federal Reserve to play this game is the wages of the employees of the Federal Reserve, which is relatively tiny to barely existent in the big picture.

    One way to see this happening is to subscribe to the M2 money report issued by the St. Louis Federal Reserve Bank. M2 measures the activity of money. That is, how often a U.S. dollar gets spent. The M2 activity consistently reaches record low after record low, demonstrating that the U.S. Federal Reserve is creating ever more dollars to buy ever more U.S. government debt, but then holding that debt without trading those bonds. Those bonds just sit there on the USFR's balance sheet, essentially as another column of zeroes on an Excel spreadsheet, doing nothing. It's not being spent to build the military. It's not being spent to pay social benefits. It's not being spent to do anything. It just sits there and does nothing.

    As long as the USFR chooses to hold the debt doing nothing, it can prevent the appearance of hyperinflation.
    Fortunately, the USFR employees are paid in U.S. dollars so they don't want to hyperinflate their wages and we can trust them to keep the debt sequestered.

    This leaves open the possibility that U.S. debt held by other nation's central banks and sovereign wealth funds could be sold by the managers of those banks and funds. The problem they face is that their assets, those bonds, are also denominated in U.S. dollars, and if they try to sell their bonds, they will cause inflation which immediately destroys the value of their assets, which is those bonds.

    It is, in fact a Damoclean Sword the U.S. holds over every investor in U.S. bonds. If a large holder tries to sell, it will destroy them. They are forced by this circumstance to patiently and quietly wait for the coupon payments to be made and the bonds to mature. Eventually, after 10 or 30 years, these other nation central banks and sovereign wealth funds can escape the bind, but in doing so they won't be able to cause hyperinflation.

    Meanwhile, the USFR can keep printing money and buying bonds. They have no time horizon and no need to monetize their 'assets', which are those bonds.

    It truly is a mind-boggling thing, but it explains why we don't have hyperinflation of U.S. dollars and it explains why M2 is so low.
  • BrettWithPKU
    BrettWithPKU Posts: 575 Member
    JeromeBarry1 wrote: »
    Speaking of the U.S. federal government, debt is a complex subject.
    . . .

    Come on man, it's too early in the day for this. . .
  • fitin50s2
    fitin50s2 Posts: 111 Member
    This is like asking.. If people are so overweight, why do stores sell so much food??

    Financial knowledge is available for free, just need to be motivated to seek it out. Just as weight loss knowledge is available for free, just need to be motivated to seek it out.

    Debit loads mostly become an issue of personal risk appetite and acceptance. Awareness of all of this is a whole other topic.
  • cwolfman13
    cwolfman13 Posts: 41,865 Member
    Banks lending money to individuals has nothing to do with the national debt. A bank's revenue stream consists substantially of interest on lending...that's how they make their money.

    Personally, the only debt I have is my mortgage and the bimmer I bought last June...I will pay the car off next month. I use my credit card for everything 'cuz miles, but I don't carry debt on my card...it's paid off every month.
  • RoxieDawn
    RoxieDawn Posts: 15,488 Member
    JeromeBarry1 wrote: »
    Speaking of the U.S. federal government, debt is a complex subject.

    I just can't read any of this..

    Banks are in the money lending business.. not gonna comment on national debt, but banks could care less if you have debt or not, if you pay your bills they want to keep lending you money.
  • Sera515
    Sera515 Posts: 9 Member
    Once you put your money in the Bank, it's not yours anymore. The bank takes it, loans it out with interest charged on it. Thus making a profit on the money you gave them that's no longer yours. Think about it, they can limit how much of your money, that's now theirs, that you gave them, that you can take out at one time without the IRS being involved. It's a racket just like everything else. Your money is only yours if it's right there in your hands. Money is only numbers in the computer. 001100001111000
  • Motorsheen
    Motorsheen Posts: 20,508 Member
    edited May 2017
    Sera515 wrote: »
    Once you put your money in the Bank, it's not yours anymore. The bank takes it, loans it out with interest charged on it. Thus making a profit on the money you gave them that's no longer yours. Think about it, they can limit how much of your money, that's now theirs, that you gave them, that you can take out at one time without the IRS being involved. It's a racket just like everything else. Your money is only yours if it's right there in your hands. Money is only numbers in the computer. 001100001111000

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  • Sera515
    Sera515 Posts: 9 Member
    Lol, when did anything ever make sense?
    Sorry I didn't mean to make it confusing. ....It made sense to me!
  • ZodFit
    ZodFit Posts: 394 Member
    Motorsheen wrote: »
    Money?

    Lending?

    Retirement?

    I don't worry about any of that....

    I'm financially secure; I've invested every cent I've ever earned in WWF Action Figures.
    Someday.... they will be worth a fortune!

    WWF-Hasbro-Lot-Ebay-004_1277147895.jpg


    Better than gold

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