> "Daniel T." earthlink.net> wrote:
>

>>> You're exactly right. However, writing or accepting a note
>>> (which is a promise to pay a certain sum at a certain time) is
>>> not producing money "out of thin air." The writer of the note
>>> must produce evidence of a capacity to pay when due.

>>
>> It is producing money out of thin air, when the note writer
>> doesn't have the capacity to pay when due.
>>
>> Your discription above is how it should be, and how it is for
>> individuals who lend wealth to eachother, but not for banks.
>> Banks routinely loan out far more money than they have the
>> capacity to pay. Usually they get a way with it, sometimes (like
>> during this housing crisis) they don't, and it falls on all of
>> *our* sholders to pay.

>
> Yes. They maintain reserves sufficient to cover *anticipated*
> demands for payment, which is less than the total amount due. That
> allows them to pay higher interest rates and higher dividends to
> stockholders. But it also exposes those depositors and investors to
> some risk. Those who prefer security to higher returns can convert
> their money to gold and bury it in the back yard.
>
> There is no economic reason for those risks to be passed on to non-
> depositors and non-investors, however. Banks carry deposit
> insurance, for which they pay premiums. If losses outrun the
> insurance coverage, tough luck for the inverstors and depositors.
>
> That is not how it works politically, of course. They'll all run to
> the gummint with their hands out, just like homeowners in Louisiana
> who build in flood plains, decline to build adequate levees or buy
> flood insurance, then run crying to the gummint when a hurricane
> strikes.