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    where does money come from?

    As the question suggests, i want to know where extra money come from

    Banks receive money from savers, they use that money to loan out to people at higher rates.
    Say there is only £10 in circulation, and im the one to have it, I stick it in a bank giving me no money and a rate of 5%. So i should expect around £10.50 in a years time. But where does that 50p come from. Maybe it comes from the interest when they lend it out, so the bank loans out the £10 for a rate of 17% for one year so they expect a total pay back of £11.70 after that year, but where does that £1.70 come from?
    In real time if we all paid back our borrowings and we all took out all our money from our banks, do they have enough money?

    I know if all customers of one bank went to get their money back they cannot give everyone their money back cos its been invested.

    Does the money making machine just dish it out to banks?

    15 Comments

    Banks invest in companies to try and get a return on your money, so if they invested in a business which went bust then most likely the bank would loose your money. Banks also make money from lending it out as you say. If we were to take all of our money out of the banks then the banks wouldnt have any money to invest meaning they would go bust.

    Thats the way i've been told about banks.

    [SIZE=2]Money is produced and withdrawn from circualtion every day. But in short no...........there is not enough money in circulation to give everyone in the UK all of their money in cash. :thumbsup:[/SIZE]

    Banned

    mug51

    As the question suggests, i want to know where extra money come fromBanks … As the question suggests, i want to know where extra money come fromBanks receive money from savers, they use that money to loan out to people at higher rates.Say there is only £10 in circulation, and im the one to have it, I stick it in a bank giving me no money and a rate of 5%. So i should expect around £10.50 in a years time. But where does that 50p come from. Maybe it comes from the interest when they lend it out, so the bank loans out the £10 for a rate of 17% for one year so they expect a total pay back of £11.70 after that year, but where does that £1.70 come from? In real time if we all paid back our borrowings and we all took out all our money from our banks, do they have enough money?I know if all customers of one bank went to get their money back they cannot give everyone their money back cos its been invested.Does the money making machine just dish it out to banks?


    Well the £1-70 comes back from whoever borrowed the money :? As to if there is enough money to pay back everyone in one go i would say a deffo yes, those who save only get a certain percentage back of those that have borrowed at a certain %, it made sense when i thought it not sure it does now i typed it :oops:

    Original Poster

    sassie

    Well the £1-70 comes back from whoever borrowed the money :? As to if … Well the £1-70 comes back from whoever borrowed the money :? As to if there is enough money to pay back everyone in one go i would say a deffo yes, those who save only get a certain percentage back of those that have borrowed at a certain %, it made sense when i thought it not sure it does now i typed it :oops:



    lol

    yeah, im not good at making sense but my example was there is only £10 no more in the world (back in year 1500), and all that person has is £10 but he/she is expected to pay another £1.70 which they dont have.

    money is just a note saying you promise to pay that amount.the note is able to be passed on for goods and services from others. the real currency is precious metals like gold. notes were just introduced because they are easier to carry than gold bars etc. at least thats my own personal uderstanding.

    Salt was used as money in Roman times, hence the word Salary, I thought I would just add that useless bit of info in as a bit of history..

    Banned

    Inactive

    Salt was used as money in Roman times, hence the word Salary, I thought I … Salt was used as money in Roman times, hence the word Salary, I thought I would just add that useless bit of info in as a bit of history..



    Really, it was salt? I always thought it was Celery.

    JDeal

    Really, it was salt? I always thought it was Celery.





    Are you " stalking " my post?

    Only really posh people get paid a " Celery ".. ;-) ;-)

    Well I know one thing, "Money doesn't grow on trees..." as my parents used to say

    lawe

    Well I know one thing, "Money doesn't grow on trees..." as my parents … Well I know one thing, "Money doesn't grow on trees..." as my parents used to say



    It doesn't??? You mean all thoses coins I planted in my garden won't grow? Bum!!

    jennybubbles

    It doesn't??? You mean all thoses coins I planted in my garden won't … It doesn't??? You mean all thoses coins I planted in my garden won't grow? Bum!!



    lol, actually they are not growing because i came round and dug them all up

    The fact that you have made 50p in interest is neither here nor there. Your money is still worth the same as prices of things generally go up (inflation!) So whereas a house 50 years ago might have cost £1,000 it's now worth £200,000. If you'd put that £1,000 in a bank instead of buying the house you'd have earned interest, would you be any better off? No, you might have more money however it's worth less than it used to be.

    Hope that makes sense! Basically things (in general) will always increase in price over time. Therefore your interest will not earn you money, just make sure your money stays about the same value.

    Benjimoron

    The fact that you have made 50p in interest is neither here nor there. … The fact that you have made 50p in interest is neither here nor there. Your money is still worth the same as prices of things generally go up (inflation!) So whereas a house 50 years ago might have cost £1,000 it's now worth £200,000. If you'd put that £1,000 in a bank instead of buying the house you'd have earned interest, would you be any better off? No, you might have more money however it's worth less than it used to be.



    As long as your accrued interest is higher than inflation, you are in profit.:roll:

    Inactive

    As long as your accrued interest is higher than inflation, you are in … As long as your accrued interest is higher than inflation, you are in profit.:roll:




    Yes, but depends on how you look at inflation. Basically the biggest purchase of your life, your house, generally increases at a higher rate than the same money would do in the bank.

    Benjimoron

    Yes, but depends on how you look at inflation. Basically the biggest … Yes, but depends on how you look at inflation. Basically the biggest purchase of your life, your house, generally increases at a higher rate than the same money would do in the bank.



    As a general rule of thumb it does until interest rates get so high and then the market crashes and you end up with negative equity like happened in the late 80's/early 90's and probably again in the next 10 years. A bank is the only risk free way of investing your money though as it will never decrease.
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