The Legal Lie Banks Tell You
The money you deposit in a bank, isn’t in their vault. It’s not in a vault across town. It’s not in a vault at your bank’s headquarters either. It’s not in a vault at all. In fact, outside of a computer, your money doesn’t even exist. It sounds weird, but that’s how most banking systems in the world are set up today. It’s called Fractional Reserve Banking and it works like this...
When a person deposits say, P10,000, into a bank, that person believes their money is still there. After all, their account balance still says P10,000.
But the truth is, the banks are lying to you.
They are legally allowed to loan out 90% more or less of your deposits to other customers and STILL tell you that your P10,000 is in the bank.
And This is the Real Dangerous & Scary Part ...
Of that P10,000 deposited, we know the bank can lend 90% of that to other customers. That’s P9,000. So say a person borrows that P9,000 from your bank to buy a Cell phone. The borrower leaves the bank with P9,000 cash and gives it to the Cell phone Store. The former Cell phone Store, happy for the sale, then goes and redeposit that P9,000 cash in the very same bank. Now two people have deposits - one for P10,000 and one for P9,000 totaling P19,000 - that came from the same exact P10,000 cash deposit. This process goes on and so on....
The extra P9,000 was “BORROWED into EXISTENCE.” and this same system created the late Housing bubble and the Global financial crisis in 2008 where the bubble in housing mortgage asset class bursts.
At times of Financial Crisis, the mass majority of the people suffer from sad experiences such as loss of job, loss their mortgaged home, get heavy on their loan obligations, increase of commodity prices, or worse bankruptcy. But on the other side of the coin – there are very few who get rewarded in the situation. Bubble bursts or a Financial Crisis is a situation where a massive wealth transfer from a single asset class to another form of assets occurred. For by principle, wealth is never destroyed – it is just being transferred to another form of asset. So, those who are ahead : the informed investors and individuals, who managed to protect their acquired assets well, and position themselves on the right asset class & investment instrument, they capture the huge wealth transfer to their pocket.
This is how our Financial System works – this is not mentioned in the ECONOMICS 101 ( I can’t recall or maybe I was absent)
Well, as always - Learn to be financially educated and YOU will be smarter to win the game of money.
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