Thursday, January 1, 2009

Show Me The Money!

Ever Wonder?

How can it be that a banking system, that provides a service and doesn't manufacture anything, has hundreds of trillions of dollars to lend?

How can it be that most everyone else needs to borrow money from them?

The truth is that we think that banks are lending out someones savings. They don't. It's pure myth. If banks did loan out your savings to someone to buy a house, you could not get your savings until they payed the mortgage - maybe 30 years until you got it all!
Banks don't even loan out reserves - another common myth. If they did that, they would not be expanding the money supply. Loaning out "reserves", or "money in the vault" does not expand the money supply, fractionalizing (banks creating new money as a loan) does, but never creates the money that is due as interest. When banks fractionalize, the debt is ALWAYS greater than the money supply and the interest obligation is unpayable. Collapse must follow.

The truth is that banks create new money when they make loans. Then they charge you interest on this new money, as if they had it to start with. A foolish and dangerous way to run an economy.