How Banks Make Money

Yes, the government prints our businesses paper money. But thats just a little small fraction of the money in use. Most of the funds in state economies is made when banks write it directly into their customers’ accounts as a result of thin air as bank loans.




You earn Rs.10,000 and put it in the bank. And then…






The bank keeps RS.1000 in its RBI(Reserve bank of India) account …


This is the “reserve,” which the bank uses when customers withdraw funds. As a rule, depositors don’t take out more than 10% of the money they have on deposit on any given day.









Then loans Susie Rs.9,000, at interest.








Susie deposits the Rs.9,000 in her bank.

That bank keeps 10% (Rs.900) in reserve and loans Joe Rs.8,100, at interest.










See how it all adds up—for the banks.

You now have Rs,10,000 in your account. Susie has Rs.9,000 in hers. Joe has Rs.8,100. 

There’s now Rs.27,100 total in accounts that you and Susie and Joe can spend, and it all came from your Rs.10,000 deposit. The banks have created an additional Rs17,100 by loaning it into existence.



Imagine this money trick over and over.

If you do this operation 50 times, that Rs.10,000 turns into Rs.99500.25—Rs.88500.25 in loans, and your original Rs.10,000.






Mad math: If those loans are for one year at 10% interest, the banks will make Rs.8800.53. If they’d only been able to loan your Rs.10,000, they’d make Rs.1000.





News For Investors: Stock Market Action Just Temporary, the Party Will Soon Be Over


In a sense, it is difficult to imagine the stock marketgoing up on bad economic news, but that’s the way it is. The stock market and Wall Street compose a system that only serves itself and its participants. I’d never fight the Federal Reserve in terms of investment strategy, but the stock market betting on a third round of quantitative easing (QE3) illustrates the real problems that the U.S. economy and the eurozone are facing. It is an age of austerity, and there’s very little economic growth to be had.

There are lots of near-term beneficiaries of the current hype; gold and silver stocks are soaring, and it’s a well-deserved turnaround in the precious metals sector. The near-term action in the stock market is good, but it’s even better for gold stocks. The U.S. dollar is under pressure, but that’s what the Federal Reserve wants: increasing money supply, artificially low interest rates, and a weaker U.S. dollar. It’s all in the name of economic growth; but at the end of the day, the business cycle still wants to play itself out and the subprime mortgage-induced bubble is still a force to be reckoned with. Economic growth, as we used to know it, is now a thing of the past.

Intel Corporation (NASDAQ/INTC) is a benchmark stock that I follow regularly, and the company’s third-quarter revenue warning was significant. The company cut its third-quarter revenue expectation to $12.9–$13.5 billion, down materially from the previous range of $13.8–$14.8 billion. The company cited weak economic growth in the U.S. economy and the eurozone, which has consumers holding onto their wallets, for the cut. Tellingly, the company withdrew all other quarterly and full-year expectations. This is definitely not good for both Intel and the stock market.

So while the stock market may still be ticking higher and the Federal Reserve will likely appease Wall Street, the underlying economic data is still weak, and this is why I feel that the stock market will soon top itself out. (See “The Fed Can’t Help the U.S. Economy Anymore.”)

It is likely that 2013 will be a very difficult year; economic growth over the rate of inflation is highly unlikely.

Corporations have pulled out all the stops to keep their earnings afloat, and they’ve done a good job of it over the last couple of years. But with little in the way of economic growth in the U.S., no economic growth in Europe, and declining economic growth in Asia, American corporations are about to feel a blow to revenues. Intel is the perfect example. Earnings in the third quarter can still beat consensus, but that’s only because these expectations have already come way down. The most important number this upcoming earnings season is revenue and we could be in for a nasty surprise.

I want to be bullish going into 2013, but it’s difficult, given minimal economic growth. I had a more positive outlook just a little while ago, but Intel’s news is like a canary in the coal mine. Stock market investors need to be extremely cautious going forward. I repeat my view that a conservative investment stance is warranted, and there’s no reason for long-term investors to be buyers in this market.


World Markets: Is the Stock Market Ready to Rally?


All year anxious investors have faced a wall of worry including:

  • The endless European debt crisis,
  • Collapse of commodity prices (including crude oil),
  • Middle-East instability (Iranian nuclear threat, Syrian civil war, religious radicalization of Egypt)
  • Increased tax burden and job-killing effect of Obamacare
  • U.S. presidential election and  the impending “fiscal cliff” in 2013, promising automatic spending cuts and tax increases
  • Record-low U.S Treasury bond yields and an 18-week low in the Economic Cycle Research Institute’s Weekly Leading Index may signal a new U.S. recession
  • Chinese economic growth may be weak for “several years”
  • U.S. employment report for June was weak


Bottom line: I’m feeling more bullish.

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What Happens To Debt After You Die?

Death is inescapable, there is no way to escape from it. Similarly you can’t run away from few kinds of Debts – and these debts are like “once a person is owing money, and die;  someone has to pay for it”. For example co-singers who sign onto student loans are held accountable for the money being loaned to be paid back as well.

This infographic from TotalBankruptcy tells you the same story with many angles – it can help you to have an idea about what happens to your debt when you die.