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National Banks
10-19-2013, 06:28 AM
Post: #7
RE: National Banks
My name is Kate,

since no one else has yet replied to your questions - hope it's ok if I do. Normally I do not dare to comment on such current and partly "national" topics. Also others sure could do much better. (It's a pity Mr. Richter didn't reply!) On the other hand any is maybe still better than no answer at all, hope my humble attempts help a bit (my mother taught economics).

AFAIK, before Richard Nixon stopped the convertibility of the US dollar to gold in the early 1970ies, each dollar was indeed backed by and thus had the value of a specific, fixed amount of gold.

I assume (but don't know!) in the US the situation is similar to Germany/Europe, where the paper money and the coins represent only 10% of the total money, 90% is (virtual) "book money", which is just to a little percentage backed by "real reserves/values" like gold or real estate. (BTW, I think a vast amount of the US paper money circulates outside the US.) Large business or international credits e.g. are usually part of the book money. If you as a private person take a small credit, you (can) get real paper money.

One of, if not THE main value to back money is economy. Any credit on the international level in the end is backed by the reputation, the economy and the economic prospects of a country, which is estimated and rated by credit rating agencies, like Moody's or Fitch.

I recently read that all the world's existing gold would make a cube of 20 by 20 by 20 meters (20m~65,6 feet). That's not as big as one would estimate, is ist? BTW, the US has the largest gold reserves, Germany is #2 (and has a large portion deposited in the US). At the beginning of the year there was a dissonance between Germany and the US. Germany wanted all its gold back that had been deposited in New York, but the US refused this because it would have appeared as if the dollar was considered less trustworthy. And, indeed, the US was ranked one grade lower by some credit rating agencies afterwards (that was not the only reason). But I don't know on what they finally agreed.

Theoretically, a (our) federal bank can create vast amounts of money (there are certain restrictions, but no restriction without exception) e.g. to decrease debts or in case too many investors/customers want to dispose of their money at once, but this on the other hand leads to inflation.
Another general alternative to get rid of debts is bankruptcy, see e.g. the "Lehman Brothers" some years ago. The "Deutsche Bank" was one of the backers, or better they recommended and sold stocks to their customers, many common people who hoped to make a little money with their savings. They lost it all. Countries could also declare bankruptcy or be declared bancrupt, but usually it's tried to be prevented.
Forgive me this now: "bancrupt" comes from Italian "banca rotta" ("rotten table"). In Siena, where the first European banking industry began (was, I think ~ 13th century), the business was first executed on tables on the market square. When a dealer failed and lost his customers' money, to warn the other customers, his table was broken.

The "inner banking system" (the relationship between national and state banks etc.) in the US is definetely different to ours, I'd like to learn about that, too.
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Messages In This Thread
National Banks - My Name Is Kate - 10-17-2013, 01:19 AM
RE: National Banks - Eva Elisabeth - 10-17-2013, 03:17 AM
RE: National Banks - BettyO - 10-17-2013, 04:35 AM
RE: National Banks - Eva Elisabeth - 10-17-2013, 03:02 PM
RE: National Banks - BettyO - 10-18-2013, 04:32 AM
RE: National Banks - LincolnMan - 10-17-2013, 03:05 PM
RE: National Banks - Eva Elisabeth - 10-19-2013 06:28 AM
RE: National Banks - Craig Hipkins - 10-25-2013, 08:21 PM
RE: National Banks - Jim Garrett - 10-26-2013, 05:56 AM

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