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Kaustubh Katdare
Kaustubh Katdare • Jan 8, 2009

Current economic recession: Where did the money go?

Alright, let's discuss this because probably everyone wants to know the answer.

Companies have been laying off its employees, people have been losing homes, bankers & investors lost the money. Lot of people have been saying that the money is locked in unsold assets. The loans were not repaid.

Can anyone explain where is the money hiding?
Red Hawk
Red Hawk • Feb 15, 2009
Its quite simple.. Foreign banks have granted a lot of money as loans for their investors without any assurance whether they could repay it or not.. Now all the investors have vanished without repaying the debts.. As a result, the banks went bankrupt.. So this resulted in a big financial crisis in US which spreaded to the rest of the world. In India, the immediate effects of this crisis is not severe but the after effects would be severe in the next academic year.. Already each and every company is dismissing its employees for coping up with this financial breakdown.. Jet airways has taken over 1000 employees out for the next 5 years. with an assurance that the same post would be given after the period of 5 years.. This is an old news.. Now there is a new but sad news.. General Motors is under a vast lack of money for proceeding their future plans.. It is now planning for dismissing 10000 workers.. Very sad for ourselves(ie) Mechanical Engineers..
raj87verma88
raj87verma88 • Feb 15, 2009
Red Hawk
Its quite simple.. Foreign banks have granted a lot of money as loans for their investors without any assurance whether they could repay it or not.. Now all the investors have vanished without repaying the debts.. As a result, the banks went bankrupt.
This was the explanation I heard from a C.A. working for HSBC.
Red Hawk
Red Hawk • Feb 15, 2009
raj87verma88
This was the explanation I heard from a C.A. working for HSBC.
All of the world renowned companies have already ransacked thousands of its employees to bear this huge hit.. Every Auditor is working on a new plan for saving his company from this crisis.. At this time of recession, it is better to think of a new idea for saving more money..
well the money is blocked in wrong investments!!! and companies which have gone bankrupt are the ones who has blocked the money,and every industry selling directly to consumers have been hit badly!!!
Red Hawk
Red Hawk • Feb 16, 2009
sauravgoswami
well the money is blocked in wrong investments!!! and companies which have gone bankrupt are the ones who has blocked the money,and every industry selling directly to consumers have been hit badly!!!
What type of wrong investments? could you specify a few?
Lumber Joe
Lumber Joe • Apr 1, 2009
The_Big_K
Alright, let's discuss this because probably everyone wants to know the answer.

Companies have been laying off its employees, people have been losing homes, bankers & investors lost the money. Lot of people have been saying that the money is locked in unsold assets. The loans were not repaid.

Can anyone explain where is the money hiding?
In the matresses
Paul Ferguson
Paul Ferguson • Apr 19, 2012
Hi,

It's a curious phenomenon of bank's bookkeeping that money is effectively created through loans and deleted through loan repayments.

If you get a cashless loan from a bank they increase your account. This increase is effectively an agreement to pay you more cash and so it becomes a new liability of the bank. You're agreement to repay the loan becomes an asset.

The increase in your account is effectively an increase in the total money supply.

As you repay a loan your current account reduces, as does your debt. The bank has less liabilities since the total of all current accounts is lower. It has less assets since the total owed to them is lower.

I'm this way the bank's balance sheet contracts.

The cosequence of this however is that the money used to repay the loan no longer exists in circulation. If loan repayments are greater than new loans the total money supply can lower which is why there can be less money during a recession.

I hope this helps.

For more information visit our website at www.sensiblemoney.ie

Thanks,
Paul Ferguson
Sensible Money
ISHAN TOPRE
ISHAN TOPRE • Apr 20, 2012
Paul Ferguson How can I get cashless money? What is "Cashless Money"?
Everytime I apply for loan I either get hard cash or the money is directly transferred to the place where I want to.

At the end of loan agreement, I have payed (Principle+Interest). So for the bank, money is created in the form of interest.

Why do you think that the money repayed (principle+Interest) cannot be used by anyone, not even the banks? At least the interest can be made to circulate.
Kaustubh Katdare
Kaustubh Katdare • Apr 20, 2012
Cashless money is just what the name says; the money that exists in the form of 'numbers' in the virtual world; yet can be turned into cash.
ISHAN TOPRE
ISHAN TOPRE • Apr 20, 2012
The_Big_K
Cashless money is just what the name says; the money that exists in the form of 'numbers' in the virtual world; yet can be turned into cash.
ok, you mean, it is only for the record. If required it can be "printed".

So it also mean that "The more money is printed, the more it is devalued."
Paul Ferguson
Paul Ferguson • May 28, 2012
Sorry for taking so long to reply CE-Baron. I clearly haven't checked this in a while.

Just to confirm when banks process loans they create new money by increasing the borrower's account. They effectively type new money into existence. Just to give you an idea of how much of our money is created this way, only 3% of the money supply exists as notes and coins. The remaining 97% exists as the numbers in everyone's bank accounts.

Bear in mind that any money created in this way, or 97% of all money, has a corresponding debt. We, at Sensible Money, see this as the root cause of the global debt crisis.

Just to get back to the original question banks delete the money they receive for settlement of a debt. This is why there can be less money during a recession. And to answer your other point any money they receive to service the debt is recorded as profit and isn't deleted. Ultimately it's spent back into circulation through the banks expenses.

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