OT: Rating the President

[Fian]

"No. Banks make more money by SPENDING it! They buy interest by loaning money out to people. They then loan out the money they make on interest, to make even more money. If people didn't spend more money than they make, and therefore have to borrow it from banks, and just saved all that they made in bank accounts, the banks could not make as much money, and so would loan out less at higher rates, and those that would have borrowed could not afford to borrow any money. As long as people are spending money, banks won't run out of it."

Wow, I didn't realize what I was talking about was viewed as so controversial. Question one: How do banks get money that they can loan in the first place? Someone chose to deposit it in the bank. What if no one ever deposited money into a bank, how much money would the bank have to loan to the spenders? 0. If a bank has 1 million dollars, and 100 people want to borrow that million dollars, who will the bank lend the money to? The person willing to pay the highest interest rate for it (or if the rates are regulated, maybe they will hide the extra money in "fees" that they charge). If 10 banks have 1 million dollars, and only one person is interested in borrowing it, what interest rate will the person pay? The lowest rate offered by a bank.

Based on the above comments, banks need people to save in order for them to exist. If there is too little money saved, interest rates will be pushed higher due to competition (supply versus demand). If there is too much money, interest rates will be pushed lower (supply versus demand). Greenspan setting interest rates confuses the matter, but I am sure that feedback from banks in regards to their supply does affect the decisions that he makes as well. If people should be encouraged to borrow more so that they will spend more, why does Greenspan ever raise interest rates? The reason is that the rate of spending needs to be balanced, not overdone.

"Banks make more money by SPENDING it!"
If you consider a person depositing money into a bank which is then loaned out to another person as "spending." Then I would agree that "spending" is good. I recommend more people "spend" their money by depositing it in a bank.

"If people didn't spend more money than they make, and therefore have to borrow it from banks, and just saved all that they made in bank accounts, the banks could not make as much money"
I agree that if everyone saved and no one borrowed, then there would be an economic problem. They key here is balance. Saving versus spending must be kept in balance.

"As long as people are spending money, banks won't run out of it."
I am not sure about this, but I don't believe that the interest that banks earn on their money is lent back out in the market. Most of the interest made is paid out to those who deposited their money in the banks, staff/equipment who run the bank, and shareholders who own the bank. The rest of the profit could in theory be deposited back into the bank, but I have doubts about that keeping pace with inflation/growth of the economy. If inflation or the economy grows faster than people save, you will eventually run into a point where the banks don't have enough reserves to satisfy all of the loan requests resulting in higher inflation.