Banks make their money from depositors by lending to others.
Banks lend out almost all the money they have on deposit and this means that there could be a bank panic if a lender can’t retrieve their deposits.
The banks are supposed to hold a percentage of every dollar in reserves, which means they have a large pile of money.
What happens if the government wants to stimulate the economy, by telling the banks they can lend out part of their held deposits or all of it?
The last time the banks were able to lend out their reserves… we found ourselves in a global financial crash!
Dr. Richard Wolff explains to Thom how all this works.
Budget deficit smashes $1 trillion mark, the highest in seven years
Real US debt levels could be 2,000% of economy, a Wall Street report suggests
‘Catastrophic’ conflict from US debt blowout
“It has to be said that American policymakers and lawmakers don’t like to be lectured by other countries about how to do things better,” said Mr Walton, a former Goldman Sachs investment banker.
“However, I do believe that these same policymakers as well as Wall Street billionaires recognise that eventually the United States will have to confront its emerging deficit and debt fundamentals if it is to avoid potentially catastrophic social conflict between the haves and the have-nots.”