The Survival Economist: This is How the Private Banks have a License to Create Money out of Thin Air


The Survival Economist
Premiered May 22, 2022

Private banks can basically create new money as they wish. That used to be the privilege of the mint of princes and governments. It’s a privilege to create money and therefore profits out of nothing.

This privilege has been in the hands of the financial industry for a long time, and in recent years, it’s been unchecked. It is not the central banks but the private banks that generate most of the money.

A process is also known as deposit money creation. Money is created when someone goes to a bank to take out a loan; the bank opens an account and issues the funds. It’s then in a contract with the individual who’s taken out the loan. The bank hopes that the person will pay it back someday. That means what the original impulse to create money comes from private banks.

If someone has savings, their money is parked in a savings account. The advantage for the bank is that a person can’t just take it out. When the bank issues a loan, it’s created from nothing. These two processes really don’t have anything to do with each other even though it looks that way, and even though that’s what the textbooks say.

This is how it works. A customer wants to take out a loan for ten thousand dollars; the bank has to deposit between one and three percent so at least a hundred dollars with the central bank. That’s it! In return, the bank is allowed to transfer ten thousand dollars to the customer’s account.

At the push of a button, the bank generates ten thousand dollars of electronic money from a hundred dollars, and in return, it collects the interest. This creation of deposit money is a license to create money.

The banks are happy, of course, that they can do this because that gives them a free rein they get to keep the profits the seigniorage . That’s a few billion every year. Who’d want to miss out on that; definitely not them.


90% of all our money just numbers on a computer in a bank somewhere. The banks make this money. Fractional reserve banking could catch a bank short in the self-perpetuating panic of a bank run. Many U.S. banks were forced to shut down during the Great Depression because too many customers attempted to withdraw assets at the same time.

Nevertheless, fractional reserve banking is an accepted business practice that is in use at banks worldwide. During a “bank run,” depositors all at once demand their money, which exceeds the amount of reserves on hand, leading to a potential bank failure.

The Ponzi system that exists is such that organizations are just borrowing large amounts of money from each other. And then using that to make money by lending it to others. Who is using that to lend it to others.

Which means that you have a system where ultimately no one really got the money that backs up all the money that’s being lent out. Subsequently when that system comes crashing down, then it’s a good night.

In today’s modern economy, most money takes the form of deposits, but rather than being created by a group of savers entrusting the bank withholding their money. Deposits are actually created when banks extend credit (i.e., create new loans).


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