Hopkins explains Canada’s banking system

You don’t understand my musings on the banking system: well I will try to explain it as the Economics Professor at the U of L explained it some 30 years ago.

A man borrowed a thousand dollars to buy a used car – they were cheaper then. The dealer put the money in the bank, then the banker was able to loan a farmer nine hundred dollars to buy a cultivator (ten percent reserve). The dealer again put the money in the bank and the banker was able to loan out eight hundred to a woman who wanted to buy a mattress. Again ten percent reserve. This goes on until the money is all used up as reserves. If you follow through the bank is now collecting interest on ten thousand dollars.

That is at ten percent reserve, but the reserve at the time was just 6 percent which means that the bank is able to loan out $16,000 based on the thousand dollars borrowed originally. And the reserve rate was dropped to four percent in 1979 by the Governor of the Bank of Canada and subsequently abolished completely. I think it must have been 1981 and the reserve had lowered to 3 ?% totally loaned up which meant the banking system is collecting interest on twenty six times the money at a much higher rate of interest which had been raised to discourage the borrowing of money. If you don’t know a few people that went bankrupt at that time your neighbors were luckier than most.

J.M. Hopkins

Hopkins explains Canada’s bankins system

You don’t understand my musings on the banking system: well I will try to explain it as the Economics Professor at the U of L explained it some 30 years ago.

A man borrowed a thousand dollars to buy a used car – they were cheaper then. The dealer put the money in the bank, then the banker was able to loan a farmer nine hundred dollars to buy a cultivator (ten percent reserve). The dealer again put the money in the bank and the banker was able to loan out eight hundred to a woman who wanted to buy a mattress. Again ten percent reserve. This goes on until the money is all used up as reserves. If you follow through the bank is now collecting interest on ten thousand dollars.

That is at ten percent reserve, but the reserve at the time was just 6 percent which means that the bank is able to loan out $16,000 based on the thousand dollars borrowed originally. And the reserve rate was dropped to four percent in 1979 by the Governor of the Bank of Canada and subsequently abolished completely. I think it must have been 1981 and the reserve had lowered to 3 ?% totally loaned up which meant the banking system is collecting interest on twenty six times the money at a much higher rate of interest which had been raised to discourage the borrowing of money. If you don’t know a few people that went bankrupt at that time your neighbors were luckier than most.

J.M. Hopkins

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