Let’s discuss how one works simple bank or Money, banking and central banks. Let’s say I’m a businessman and I look at one among the many problems of the world. There are many people who have worked hard to. For example, they are doctors, lawyers, engineers, builders workers, and so whatever they do. They work, and provide services to each other and meanwhile they have savings, right? For the moment, let’s just say that they are keeping their savings buried in the garden. And that at the moment they are just collecting them. OK?
Money, banking and central banks
That “money” is doing nothing. They have offered goods and services to someone else. These people give something whatever it is. For-example gold, or a piece of green paper with a few words: gold or this green paper gives you the right to have some future goods and services. Those people say, that’s sicka useful to have. Let me put it under my mattress. So we have a huge amount of money saved and we can have it. The group of businessmen who have a bunch of very good project ideas and they are thinking. Do you know what? If I could – let’s put it here: projects or investments. If we had another businessman who used to say, you know what?
I’m not looking for any goods or resources, but I have an idea. I got the idea that if I had a group of people to germinate channels in the crops. They would be able to increase further planted throughout the year. We would all become richer because we would all have more food and that would be a really good commodity and service in the full sense of the word.
Money And banking
But how can I get these people to dig and build gaps for me? I can promise you in the future after all this work to be done, I can do something, and give you more foods, but that might not be a good solution. No one would want to work for me as long as they feel more confident that they would have something in return for work. So we have an important problem here. You have a bunch of people who have previously offered goods e services to the world. The world has returned trinkets or whatever it is made of gold or banknotes.
Let’s say it was gold? I want to make it clear that everyone is talking for gold as if it were something very special. It really is to represent wealth, while money on paper in reality did not represent wealth. This is not true. Gold / Gold has nothing special. Gold is priceless except for the fact that it is beautiful. This is the only thing that makes gold useful. In fact, it’s beautiful and it’s hard to fake. Quaternions, aren’t that pretty, but they have other advantages. They’re easier, and at least the money we use is not very easy to fake.
Inflation and Deflation
I want to stress this, people always think that gold is better than banknotes. And we will talk about inflation and deflation in the future and the fact that there is an obligation on the amount of gold that is it can be produced, but you can print money. But we will talk about this shortly. So in our modern world where savings are these pieces of paper but if we are going to talk about a culture primitive then would be to use gold. So a group of people have a pool of goods and services. They get these little coins and these coins are the way society is agree. If you have one of these coins in the future, and if you give this coin to someone else, they will do something for you.
How much of that currency you would have to give for them to do the service? This is based on supply and demand and price. However, These projects, so I was saying, if I could find a way to convince someone to dig a canal would be extraordinary useful. It would create wealth or ditch for irrigation. But how to accomplish it? If I had gold or if I had these little coins. I did I could give people these coins. They would germinate irrigation gap and can pay people who use the service of using. I can pay for the passage water and in this way, I could make a profit. But how to accomplish this? Then what if I borrowed from some people? What do you think?
These people have units of goods and services called gold coins. If I had the opportunity to borrow their money and use them to pay people would then actually be created goods or services or made a new project, and that would produce wealth. I could share with these people, something was happening to us the form of some kind of interest. It is very difficult for these people to simply be in space to evaluate these projects. These projects do not need a fraction of the savings of one person. They may need 1000’s savings people because it’s a great project. It is also difficult for these people to appreciate who has one good project. It is difficult for these people to assess who has savings. In fact, if I have savings, if I have hidden a bunch of money in us the backyard or under the mattress, I don’t want them say verdalle.
The people would come and rob me. So I’m a third businessman. I see the opportunity for business and I call this bank business. So what will a bank do? What will my bank do? Let’s talk from the roots. how will i start my business? I’m actually one of the businessmen. Let’s say I have some savings, and to make it easier lest I dive deeper. Let’s say I have 1 million savings in gold coins. let’s say $ 1 million.
Finance balance sheet
Let’s draw a balance as you can see the balances were also needed primitive cultures. So this is my balance. Let’s say the balance sheet. I make a million dollars with gold coins. I’m saying $ 1 million because we are used to this figure. Let’s say a gold coin is worth a dollar. So have we one million gold coins. We know this is not true. Yesterday I am using this comparison to build a large structure of a precious stone to look really safe. So I’m just trying to build a big building, okay? So this is my capital, and I’m using it to build a building, very large, and beautiful.
Here’s my drawing of the building. There are pillars on the facade. It looks like a Greek or Roman temple. I believe it’s not an accidental sight. So I built this building that people not afraid to bring their money into this building. They can to be factually safe. I tell everyone, look: I’ve built this great, beautiful building. Instead of keeping the money in the yard or under the bed, why not put savings in this building. How many times do you need them, can you get them? And after all, I’ll pay you to keep money to me.
It seems like a reasonable exchange and this building still looks more believable because it looks like a Greek temple. So, everyone believes in their savings. Let’s say it’s $ 10 million from savings in my village. I have a really rich fhsat. So I have $ 10 million in deposits. These are obligations to me, right? What is a liability? For proof that I owe it to other people. They’re giving me the money to keep me safe. So this is my obligation. This is my capital. If I weren’t just myself, if there were 10 shareholders, each of them, to have 1/10 of all that money. But this is a single property. So this is my capital. This is my building. I’m pursuing a business, right? I’m not doing all this work as well non profit or as a charity.
So what can I do with these $ 10 million in deposits? I told people they could get it money anytime you need it. I took their money to keep them safe. If they put money in. One day they can’t get the money, then they will start to doubt me. So I have to keep some money right away. For example there may be about 3000 or 4000 people. So on a certain day, someone, not everyone hope not come to get the money or to put other money inside. I need some cash reserves in case people want to to get their money. So I need some of that $ 10 million to have cash on hand.
How one can make money?
Let’s draw this with storks. Let’s keep 10% of the money in cash. So I’m going to keep $ 1 million in my hand and have it $ 9 million left to use to produce something. And what I can do with that $ 9 million is for example to lend you people who have very good projects and investment ideas. So $ 9 million in loans / loans, that’s an asset, isn’t it? I give money to someone else. And they owe me $ 9 million. I’m practically borrowing $ 10 million, holding 1 million aside, and I’m paying $ 9 million in loans. I can have a group of different projects. For example there might be 100. So I’m not giving $ 9 million to just one person. I’m diversifying into a bunch with different projects.
So the question that naturally arises is: how do I make money? Then those credits, I for example put them on in irrigation ditches either to build factories or to to do everything else. Which is really an investment, that creates more value than it took to get started. So I can actually claim to be paying interest and those interests are part of the value that is being created. So let’s say I ask for 10% for this money. Let’s say I invested very well and there has been no failure. I am the first bank and have the opportunity to choose the best investments. I get 10%. and for their money, these people I got the money for, don’t get the money just the fact that I’m keeping their money in a safe deposit but I’m, and paying them 5%. So how much money can I make in a year? I’m earning 10% over $ 9 million.
How much? It’s the $ 900,000 I’m earning. How much do I have to pay others every year? 5% for $ 10 million, I’m paying $ 500,000. So interest income – $ 900,000 Interest expense – $ 500,000 I have $ 400,000 net left. Let’s say I pay about 100,000 for salaries and for insurance eg guards etc. So actually I get $ 300,000 net So I’m earning $ 300,000. I’ll give you a little more detail about this. If you look at the situation clearly, I have 1 million dollars in the bank. Every year, I’m earning $ 300,000 running providing this service, finding matching savings with investments good and everyone benefits. The pie starts to grow as these are investments money truths that will also benefit my village. Of course, these people benefit because they get it security for their accounts and their money is actually increasing. They are actually participating in this capital investment. anyway.