Using Banks and Bank Accounts/credit card balance transfers
I am familiar with the concept that when you purchase something with a credit card, the issuing bank does not actually send existing money to pay the business for your purchase, but has a credit line with the Federal Reserve, creates the money out of nothing, and the consumer's debt increases their assets. Is this correct?
My main question is when you request a balance transfer from one credit card to another, does the bank pay off the old card with actual money, or is it electronic money created thru the Fed as with the fractional reserve banking system. I have suspected it is the "created type," or how could the credit card banks offer low or "zero" interest rates on balance transfers?
The way they can make this happen is they are taking on gamble on 2 things,
1) Many people do not pay back the full balance within that time frame and end up paying interest after the promo.
2) People tend to keep cards open and not close them, so they are gaining a new customer and people tend to use most of the cards they own.