Bank Accounts and Lending
- Chapters 17-21 Ellinger
- Money: unit of exchange (shopping)/store of value (savings account)
- When you deposit money, the bank spends it. They lend it to others and invest it.
- You do not own money that you give to the bank; they owe you money
- As it was inconvenient to carry gold, paper money was created to exchange the gold.
- Goldsmiths held the gold for them
- Goldsmiths began to lend the gold to others (limited on how much they could lend)
- Most money has no physical existence: choses in action
- Interest is given when the bank owes you money
- You pay interest to the bank when you owe them money
- Banks are free to do what they like with the money
- Can no longer pay with cheques (as of 18 months ago) because cheques can bounce
- When shopping, banks transfer money to each other by figuring out how much they owe each other
- If the payment system broke down, we would descend into chaos!
- Natwest, summer 2012, people couldn't make payments (rent etc.)
- Argentina: best track record for financial crises
- People turn to other methods for payment: bartering with cigarettes and other goods etc.