Allow me to issue and control the money of a nation, and I care not who makes its laws mayor Amschel Rothschild the founder of the Rothschild banking dynasty and father of international finance, money, money money:
You either have it or you sell your whole life to get it money is everywhere: It’s the chair, you’re sitting in It’s in the cell phone or computer that you’re using to watch this post, and It’s in the tissue that you blow your nose in.
But have you ever thought about where money comes from? Who creates it? How It’s being created and who controls it? These questions seem to be simple, but even most economic students and teachers don’t know how money is created today.
The way our money is created is the main reason you can’t afford to buy a house or find a good job. It’s the root cause of major problems. The main reason that there’s a lot of complexity around money is to hide the truth.
this post will explain it in simple language. In our modern economy, we have two kinds of money: paper, money and electronic money which is the most commonly used money today? Electronic money is the numbers you see in your account or payment card you use when shopping.
If we think of money in terms of our daily use, there doesn’t seem to be much difference between the two kinds of money. If you buy a cup of coffee, it costs the same, regardless of whether you pay you with a card or cash. The difference between the two seems to be merely a matter of convenience or preference. If, however, we ask how money is created, then we will see that there is a huge difference.
Let’s start with paper money paper money is created by the central bank in the form of paper bank notes and coins. You can read that on a bank note, if someone else tries to create it, they will go to jail for counterfeiting. Many people believe that the central bank is the main organization who creates the majority of our money, but in reality, only three to five percent of the total money supply is paper money created by the central bank.
The remaining 95 to 97 is electronic money created by commercial banks, electronic money- is very tricky. Many people think that electronic money is just the electronic version of paper money. However, that’s not quite true. Electronic money is created by commercial banks when they issue new loans.
Imagine that you go into a bank and get a loan for ten thousand dollars. This loan will rarely be paid out in cash. So when you spend this electronic money, you simply transfer it from your account in your bank to someone else’s account in his or her bank and in this process.
The electronic money is not transferred into paper money and then transferred back into electronic money. When a bank issues a loan, let’s say one million dollars, it means the bank simply creates and adds one million dollars to the total money supply in the economy.
Maybe right now you’re wondering: where did the bank get this one million dollars to lend in the first place? Is there an army of grandmothers and grandfathers who put their entire life savings into the bank and the bank is using this money in order to make a loan for one million dollars?
Of course, not they just typed numbers into your account step one, you sign the loan step, two bank types, the numbers into your account 95 to 97 of our money supply, is created in this way. I’m sure some of you are saying well come on. How is that possible? There’s no way that the bank simply types numbers into my account.
When I borrow money, you might not believe the things mentioned in this post, but here’s a quote from the central bank of england. Commercial banks create money in 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 doesn’t typically do so by giving them thousands of bank notes.
Instead, it credits their bank account of the size of the mortgage. At that moment, money is created. It’s easy to get excited about all these new smart ways of paying for things such as internet banking, payment cards and smartphones, but we have to remember the price we pay for this convenience. We’ve essentially privatized the creation of money in our society.
I’m sure you’ve heard the saying money is power if money is power, then what does it mean to give the creation of this power to banks to profit seeking private organizations? I hope you’re starting to see why It’s a big issue to let banks create money now.
First of all, let me tell you that I don’t hate banks, I’m not saying that banks are evil or bankers are greedy. The main problem is that we’ve given too much power to the banking industry, we’ve basically allowed banks to combine two vital processes which are money, creation and money lending.
As a result, when banks lend money, they are creating money. It’s very important that you understand this part, because It’s a direct impact on you. This is the main reason you can’t afford to buy a home and find a good job today, just like normal private businesses.
Banks also want to maximize their profits and minimize their risks, which means they have incentive to lend money to certain sectors that are less risky, and you know what sector has the lower risk for banks real estate for banks, It’s risky to lend money to a small business because there’s a high chance that it will go bankrupt, but mortgages have collateral. If the borrower can’t pay.
The bank will take the property to cover its losses, since it makes sense for banks to lend money for mortgages newly created money, floods into the real estate market instead of other sectors.
That society needs such as renewable energy creation of new businesses, schools, hospitals, those type of things from the surface it may seem like society benefits from cheap mortgages, but we don’t imagine that on new year’s eve, santa claus comes and doubles everyone’s money.
Suddenly everyone feels rich and rushes to shops to spend it, and you know what happens next. Within a few days, prices will rise since prices rise. No one is going to benefit from the sudden increase of wealth having access to cheap mortgages works in a similar way.
House prices just keep getting higher and higher. A common belief is that houses are expensive because of immigration increase in the population and decrease in the amount of newly built homes, even though these factors can have an impact today.
These are not the main reasons for such high house prices. The biggest impact comes from the increase in mortgage lending in a 10-year period between 1997 and 2007.
In england, 40 of newly created money went to the property market 37 to financial markets, 10 to credit cards and personal loans, and only 13 went to businesses that benefit the economy. That’s why, on average, every year home prices are going up 7.7, while salaries are rising by only 0.8.
These numbers are for the uk. Since the author of the book, I’ve used to create this post is from the uk, but the situation is similar all around the world, as you can see, almost 80 percent of money went to non-productive sectors that don’t benefit the economy and job creation.
As a result, new jobs are not created and unemployment goes up. For example, in italy, 40 of youth under 25 are unemployed in spain, It’s 56 and in greece It’s 60. This is a massive waste of human resources who want to be doing something useful, but can’t simply because of how much money is created and distributed in the modern monetary system.
So if you want to solve the housing problem, in unemployment, you need to look at how our money is created. One of the common questions I get is this: if banks have created so much money, then why don’t we have inflation in the economy, as you just saw, a big portion of the newly created money.
Doesn’t flow to the economy, it flows to the property market and financial markets. Inflation is created in the direction where the money flows, that’s why home prices and stocks are going up while the rest of the economy moves like a turtle in the past one.
Member of the family was working and was able to support the family plus buy a house, but today both partners are working, but despite that, they can’t afford to buy a house. Many young families who qualify for mortgages barely pay their regular expenses and mortgage payments.
What’s going to happen, if interest rates go up well, the bank will kick them out and take their homes, but here’s the most important question that no one asks. What did the bank do in order to earn the right to take away the homes of these families except tight numbers on the screen?
Therefore, mortgages are the best selling product on banks shelves and why It’s a bad idea to let banks create money and control it instead of getting excited about all these new electronic ways of payment. Wait a second and ask who really benefits from it. Since everything is electronic banks are closing their branches, they’re closing ATMs.
They don’t need to hire people, they don’t need to buy bulletproof cars to carry the money. These all translate to lower costs for banks on top of the massive profits they get from creating money.
Out of nothing, I would like to talk about three more problems with our banking system, which are inequality, instability and accumulation of power in the hands of a small group of people.
First, let’s talk about instability, the way banks, lend money is very similar to an umbrella shop which sells umbrellas when the sun is shining, but when it starts raining, the shop closes when the economy is booming and stocks and house prices are going up.
The banks are very keen to create new money and lend it to the economy. This, however, has the effect of inflating prices in the economy even more as we know, ultimately, these bubbles burst and crisis happens. When the crisis happens, the banks become reluctant to create money and lend it into the economy, and this in turn worsens the situation.
Banks have an incentive for creating money when we don’t need it and hold it back when the economy actually does need it. The second problem is inequality. As we all know, when we borrow money, we must pay interest and can think of this interest as a kind of tax on money.
This tax, however, works opposite of normal taxes in the normal tax system, the higher you earn the higher taxes you pay. However, in the banking world, the more you earn, the richer. You are the less taxes you pay, in other words the richer. You are the more assets you have the lower interest you pay to the bank.
On the other hand, if you’re poor and have little money, you have to pay a high interest rate. The way money is created is a key explanation for the inequalities in our society and why it keeps rising. The same. Inequality applies to countries as well we see some countries paying high interest rates and thereby becoming poorer and poorer. We see other countries getting richer and richer and paying lower interest rates.
The third problem is about power. If you can decide when to create money, if you can decide how much new money to create, if you can decide the interest rates to charge, if you can decide for what purpose to lend money, then you have an enormous power over everyone else, and this power is not only over the economy but over the society by privatizing creation of our money, we’ve essentially handed over vital power to the banks.
That’s why so many politicians today appear so impotent, because the crucial decisions are not made in congress or parliament they’re made in the boardroom of major private banking corporations. We need to start questioning the power we’ve given to the banks.
We need to start questioning if we really need a big banking industry, while other sectors, such as healthcare, schools and small businesses, suffer one of the common things I hear a lot is that debt is bad, but money is good. People want the money, but not the debt but they don’t understand that that’s not really possible in the current system. Money is debt.
If we want more money, we have to go into more debt. If nobody went into debt, then we would not have any money in the economy. If there’s no money, then spending will go down and when spending goes down, basically the economy goes down.
You hear politicians on tv talking about paying off the debt and living debt free, but they don’t realize how ridiculous they sound when they make these statements. Unfortunately, most people believe them because they don’t understand how money works.
Money is something we spend our entire life earning. We use it every day, but we’re not educated about it. People don’t want to talk about it. They think It’s taboo. They think money is bad or money is evil, money’s just money, It’s neither good or bad saying money is evil, It’s like saying pizza is evil.