First an opening statement of mine.
When any Commercial Bank makes a loan, it creates the money out of thin-air. When the loan is paid back, the Bank only keeps the interest, the principle, the money created out of thin-air, is retired, destroyed. This makes sense because money represents once-performed labour (we hope!) and cannot exist in two places at once.
Given this fact, (well I hope it is) I would now like to ask two questions of you-all.
One:-
If I was to buy a US Treasury Bond, I would get back the principle of my loan, plus interest; WHAT ABOUT the FED, when they buy a US Treasury Bond (NOT a existing Treasury Bond from the open-market, a NEW deficit-funding Treasury Bond) with money they created out of thin-air, they get interest, but what about the principle, is that money retired, destroyed, or do the generous benefactors get to keep it (the principle) as well?
Two:-
Given the fact of my opening statement; HOW is it that Commercial Banks in the USA manage (or mismanage) to go broke?
I know the small depositors are covered by the Bank's insurance, so their money is safe (up to a point). I understand many aspects of fractional reserve lending, and reserves can come in many different types... and people can default on their bank loans, but... I suspect the Banks make unfortunate or unlucky or ill thought out investments or speculations with their depositors money... International currency speculations, the stock market, a card game late at night... Please for my benefit, try to keep your answers simple, yet with some substance.
Thank-you for your learned consideration of my questions. Matthew.
