Money Creation

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Money Creation: Banks - Crash Course Chapter 7

Get ready for your mind to be repelled
Friday, August 1, 2014, 9:14 PM

Chapter 7 of the Crash Course is now publicly available and ready for watching below.

As a follow-on to the previous chapter explaining the nature of fiat money, this week's video details one of the two methods by which it is created: fractional reserve banking. As John Kenneth Galbraith famously stated "The process by which money is created is so simple the mind is repelled." » Read more

video

This chapter of the new Crash Course series has not yet been made available to the public.

Each week over the rest of 2014, in sequential order, a new chapter will be made publicly available (we've currently published up to Chapter 6)

If you don't want to wait, you can:

 

video

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Here’s a quote from a Federal Reserve publication entitled “Putting it Simply”: When you or I write a check, there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.

Wow. That is an extraordinary power. Whereas you or I need to work to obtain money, and place it at risk to have it grow, the Federal Reserve simply prints up as much as it wishes, whenever it wants, and then loans it to us via the US government, with interest.

All dollars are backed by debt. There are two kinds of money out there. At the local bank level, all new money is loaned into existence. At the Federal Reserve level, money is simply manufactured out of thin air and then exchanged for interest-paying government debt. And perpetual expansion is a requirement of modern banking.

video

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Here we will explore the process by which money is created. In order to appreciate the implications of our massive levels of debt, you have to understand how the debt came into being.

John Kenneth Galbraith once famously said, “The process by which money is created is so simple that the mind is repelled.” We’re about to discuss that very thing. Money creation is a bizarre thing to ponder. It is actually a very simple process, but it’s really difficult to accept.

Money is loaned into existence. Conversely, when loans are paid back, money ‘disappears.’

There is a federal rule that allows banks to loan out a proportion, a fraction, of the money they have on deposit to others. In theory, banks are allowed to loan out up to 90% of what people have on deposit with them. Because banks retain only a fraction of their deposits in reserve, the term for this process is “fractional reserve banking.”