Six Myths about Money and the Banking System

How is money created? If you ask average people on the street this question, most of them have absolutely no idea. This is rather odd, because we all use money constantly. You would think that it would only be natural for all of us to know where it comes from. So where does money come from? A lot of people assume that the federal government creates our money, but that is not the case. If the federal government could just print and spend more money whenever it wanted to, our national debt would be zero. But instead, our national debt is now nearly 16 trillion dollars. So why does our government (or any sovereign government for that matter) have to borrow money from anybody? That is a very good question. The truth is that in theory the U.S. government does not have to borrow a single penny from anyone. But under the Federal Reserve system, the U.S. government has purposely allowed itself to be subjugated to a financial system in which it will be constantly borrowing larger and larger amounts of money. In fact, this is how it works in the vast majority of the countries on the planet at this point. As you will see, this kind of system is not sustainable and the structural problems caused by such a system are at the very heart of our debt problems today.

Josh Ryan-Collins of the New Economics Foundation explains how banks create money, out of thin air, through the accounting process they use when they make loans.

“Independent Commission on Banking told us that there was a “disagreement” amongst the commissioners about whether or not the banks created money!
…So, that’s the situation we’re in. These are the people who are charged with recreating our banking system! And they don’t even understand that banks create credit when they make loans”

The 6 myths about banks and money are:

That banks are intermediaries between savers and borrowers
That money is created through the ‘money multiplier’ and the amount of money depends on the amount of ‘base money’ created by the central bank
That interest rate adjustments affect bank credit creation
That credit allocation is demand driven, rather than controlled by banks
That the banks know what’s best for the economy
Regulating (or democratising) credit creation doesn’t work.