Fiat Credit Money

Magic Money

… is our public money, it is created in our name, backed by our futures. So how come private banks get to create it ?

“… there remains widespread misunderstanding of how new money is created, both amongst the general public and many economists, bankers, financial journalists and policymakers.  …  the creation of new money and the allocation of purchasing power are a vital economic function and highly profitable. This is therefore a matter of significant public interest and not an obscure technocratic debate.”

Charles A. E. Goodhart, Professor Emeritus of Banking and Finance, London School of Economics 19 September 2011.  Foreword to Josh Ryan-Collins “Where Does Money Come From?” (p. 3). The New Economics Foundation. Kindle Edition.

Every new loan that a bank makes creates new money. While this is often hard to believe at first, it’s common knowledge to the people that manage the banking system. In March 2014, the Bank of England release a report called “Money Creation in the Modern Economy”, where they stated that:

Bank of England - Money Creation in the Modern Economy

“Commercial [i.e. high-street] banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.” (Original paper here)

Sir Mervyn King, the Governor of the Bank of England from 2003-2013, recently explained this point to a conference of businesspeople:

Mervyn King, Governor Of The Bank Of England

“When banks extend loans to their customers, they create money by crediting their customers’ accounts.”

Sir Mervyn King, Governor of the Bank of England 2003-2013

 

And Martin Wolf, who was a member of the Independent Commission on Banking, put it bluntly, saying in the Financial Times that: “the essence of the contemporary monetary system is the creation of money, out of nothing, by private banks’ often foolish lending” (Article). (video)

By creating money in this way, banks have increased the amount of money in the economy by an average of 11.5% a year over the last 40 years. This has pushed up the prices of houses and priced out an entire generation.

Of course, the flip-side to this creation of money is that with every new loan comes a new debt. This is the source of our mountain of personal debt: not borrowing from someone else’s life savings, but money that was created out of nothing by banks. Eventually the debt burden became too high, resulting in the wave of defaults that triggered the financial crisis.

 

Banks sit at the heart of our economy and enjoy billions of pounds of public subsidies every year, but with spiraling inequality, unaffordable homes and a climate crisis on our hands, banks are a big part of the problem.  More

By creating money in this way, banks have increased the amount of money in the economy by an average of 11.5% a year over the last 40 years. This has pushed up the prices of houses and priced out an entire generation.

“Imagine a world where huge amounts of money are created out of nothing for private profit and destroyed again once profit is taken, so that new money can be created again (and again, and again) – for private profit.

Imagine a world where governments can borrow huge amounts of money created by private corporations (for their own profit) and charge the debt to taxpayers (without any say-so from those taxpayers); then use the money to do whatever they like, including buy arms, make wars and laws and payments to benefit themselves, their supporters and friends.

Imagine a world where the entire money supply is created as debt, and rented out at interest. Debt rented out at interest? Can such a devious a form of robbery even exist?

It can and does; for this is the world we live in today. A world where eight individuals own more than the poorer half of the world’s population;[1] where government and finance are deep in each other’s pockets; where the desires of most people for a better world are frustrated at almost every turn.

Today’s money consists of debt, created by banks in such a way that productive working people end up with debt while assets go to the rich and powerful. By ignoring the way money works, we have allowed the world to take a downward spiral. Not many people understand the process: so instead of reform, voters reach out to vicious, unstable dictators to rescue them.

The basics of the system are not exactly a secret. Many central bank websites have an account of how money is created as two-way debt.[2] But the subject and its process are so little discussed, they could be the tightest-kept secrets on earth.

For many years now, the subject has stayed ‘under the radar’. Most people in active life – certainly those with success, influence and power – have done well in the system as it is. Naturally, they do not like to think they have prospered from, and given their working lives to, a corrupt system. Furthermore, reform is alarming. Would the world be turned upside down? Would we lose what we already have? The system is unstable. Rocking an unstable boat in an open sea is not a good idea. As for voting citizens, the subject is tricky and time-consuming to understand. Meanwhile, the lives of billions of people are reduced to desperation and misery by ever-greater inequality and unaccountable powers. ‘Globalization’ is not globalization of justice, or democracy, or free trade; it is globalization of money-creation and predatory finance.

What about those people whose job is to tell us what is going on – politicians, the media, economists? There’s an old saying: ‘He who pays the piper calls the tune’. In politics, the media, and academia ignorance – or at least silence – about the unjust workings of the monetary system is a prerequisite for acceptance, let alone advancement.” read more

 

 There is no magic money tree but …

 

how the Federal Reserve created money to bail out AIG in 2010

 

plenty more videos on GaiaMoney YouTube

GaiaMoney YouTube

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