Bank of England votes against another cash boost for now

If inflation is 2% then interest on savings should be at least 2%.

Any less and we are being robbed.

If interest on savings is 2% then interest on mortgages should be a fraction of 2%. Fractional reserve banking should work both ways!

I suspect most people reading the above would believe me to be financially illiterate. One of us is……………………….

Banks are allowed to loan money into existence. They create money when you sign for a loan. Which you pay interest on.

If they create 10 times more money than they have and loan it all out. They aren’t getting 4% on the original deposit, they are getting 40%. Thus they are being exceptionally greedy and we are being exceptionally stupid.

If inflation is 2% then savings interest could easily be 4%.
Mortgage interest could easily be 1%. The bank is still making money.
The fractional reserve banking mechanism means that they are not getting 1% income from mortgage lending but 10%.

Sounds like nonsense, it is. It is also how we are being fleeced.

Go on, spend an hour thinking this through.
Research fractional reserve banking.
Don’t be financially illiterate.

Hi, I have thought of a clearer example.

I open a bank offering 5% interest on deposits.
I soon have £100,000 in deposits.
I can now legally loan out £1,000,000 (with a 10% fractional reserve.)

My mortgage rate is 1%. I will soon be rich.

I make 1% on £1,000,000 which is £10,000
I pay out 5% interest on £100,000 which is £5,000

I make £5,000

Now if I tweak mortgage rates to 4% and reduce interest payments to 0.5% and reduce my fractional reserve to 0.002% rather than 10%. Well you do the arithmetic.

Answers below please.

Answer.

I make 4% on £50 million which is £2 million
I pay out 0.5% on £100,000 which is £500

I make £1,999,500

Are you financially literate?

If it keeps this quantitative easing going there won’t be much left of peoples pensions and a return on savings is a joke. The Banks buy their money from the markets at a ridiculously low rate then charge you 9 time more for the privilege of borrowing it in order to re inflate there books. So heads you loose tails you loose.