ok what is the truth

?????? any answers

I am confused now.

so what is the truth in all this? or is it a big flat lie or what? maybe i said it all wrong too. that might be a big problem. just let me know.

Conspiracy theories won't help you out of debt.This has been going around since the early days of our country.It is basically saying banks don't have the money to back up what they loan on.Most banking institutions are tied in on network where most of our money is shuffled electronically.

that was my thought too, Cajun...this sounds like someone has severely misinformed this lady.

karens - look at it this way: when you get a credit card, you are borrowing money from the credit card company. When you go to the ATM, do you get "air money" out of the ATM? No, you get real money. In essence, the credit card company is loaning you money against your promise to pay it back with your payments every month.

Yes, a lot of the money that changes hands in our society today appears to only change hands on paper...in other words, no dollar bills change hands, only pieces of paper with the dollar amounts written on them. Same thing with a credit card. But in truth, the money is there - it has to be - or there would be no transaction at all.

I think what Karen is trying to get at and is in fact true is that banks do not have enough money on hand to cover all of the money in the deposit accounts. They are required to have a certain amount of reserves (around 10%) per FDIC guidelines to be FDIC insured. The rest of it is shuffled around to loans of various types. One of the factors in the Great Depression was the fact that the banks did not keep enough money on hand and over extended themselves in loans. Many people made a mad dash on the banks demanding their money but the banks did not have it. This coupled with the stock market crash wreaked havoc amongst all people that did not have cash on hand. The value of the dollar went way up because the supply was very low. Some people blame the Federal Reserve for not letting money flow back into the system fast enough to maintain liquidity.

The United States uses a few different formulas to determine the money supply which is controlled by the Federal Reserve. One formula is based on the amount of printed money available plus the accounts at the central bank that can be exchanged for money. The current physical money supply is around 80 billion which equals about $300 per person. This means that each person could physically hold 300 one dollar bills and that would equal all the physical printed money. I think this is where you are getting the statement that money comes from air since there is not enough printed money to cover what is on the books. The next calculation adds in all FDIC insured bank checking accounts. The final calculation adds in savings, money markets and CD????????s under 100,000. The last two formulas are basically electronic in format only. The money transaction are recorded electronically on computers to keep track of who owes what to whom (i.e. credit cards, car loans, mortgages, savings and checking accounts.)

The idea of money and monetary value is very complex but in its simplest form money works basically like any other products by following supply and demand. The amount of real currency available affects factors like interest rates and inflation. Couple that with a global economy and money being traded like stock based on the gross national product and you end up with a value based on many different factors. In reality though there is no need to have a physical dollar available for every dollar on the books.

When a credit card is charged off I do not think the creditor collects insurance money to pay off the amount owed. They do get a tax break on the amount owed though including a break on all the extra interest and fees they charged. They also have the option to sell the account to recoupe some money and that is where you are getting the information about an account being sold. In some cases old accounts are sold for less than a penny to every dollar owed.

You might be getting charge offs confused with mortgage foreclosures. Some mortgages require you to carry mortgage insurance if you have a high loan to value. Basically if you borrow more than 80% of the home value you might be charged PMI. This shows up when you purchase a house as an upfront MIP charge and a monthly PMI charge. This insurance covers the difference between what you owe the bank and what they sell the house for. If you default on your loan you are still liable for the difference too so in essence the bank could double collect by filing an insurance claim and eventually settling the bad debt.

Dollars, thank you so much for that...it's the best explanation I have ever read on that subject...

tys so much . i thought maybe i lost it. but in a way i did. but ur on the right track dollars thanks for explainin all that to me.

Don't we all know that dollars is the man? I don't think there's ever been a time he hasn't "come through"! Thank you, dollars, for always explaining things in plain english for everyone! :D

Ah shucks guys. Thanks for the kind words. If anyone is interested and wants to read more about these topics I briefly covered or verify my information then do a web search on the Federal Reserve, Alan Greenspan, gold reserve (which I did not cover), money supply, FDIC insurance, private mortgage insurance (PMI) or mortgage insurance premium (MIP).

Thanks for the post, dollars! I'm sure it's good information for everyone! :D