Where does money really comes from?

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In the left column of the Mainpage, click on the question: Where does money really comes from? Question posted on Friday, 22 June 2007!

  • (2007! I think, meanwhile we should had taken the time to understand this mess, instead of running in 2008 into a crash !!! – Therefore again my eternal same question: How long will it take until (not all the dumbest, but maybe 10% of the more clever) humans are able to meet to force our governments to stop this nonsense – the nonsense paying back THIN AIR to the banks?
  • The whole DEPT QUESTION, STATE FAILURES, INSOLVENCY PROBLEMS would radically change!
  • WHY our governments and their experts (inclusively mainstream medias) do not inform peoples about this mess? Are they blackmailed, are they not clever enough? Are they too much afraid? Or are they part of it?
  • ARE WE TOO MUCH AFRAID – OR/and ARE WE JUST TOO SILLY TO CHANGE ALL THAT? And: yes, we are all part of it. So what, now we have to change it!).

Some Answers in the following Discussion-Forum:

  • Most people mistakenly believe that government creates money: In 1913, the power to create and control the money of the US (“the money power”) was given to a cartel of private banks called “The Federal Reserve.” The irony is the Federal Reserve is neither federal (it’s private), nor does it really hold reserves (there’s only $11 billion in gold on its balance sheet). What it does hold is the power to create money, and the US government uses the “Fed” as a partner in the business of spending more than annual tax revenue. Without the creation of new money, government spending, and therefore growth, would be constrained by tax revenues (imagine having to pay for every new military adventure with higher taxes!). Thus, the Federal Reserve was born so that the Federal Government might continue to grow.
  • How money is created: Simply put, banks create money out of nothing electronically when someone is willing to borrow it. Let’s say you walk into a bank looking for a loan for a new car, and you’d like to borrow $10,000. Assuming you’re “approved,” you sign a promise to repay the $10,000 plus interest over time, and the bank creates an electronic entry in your account crediting you with $10,000. Voila, you’ve just helped give birth to $10,000 new dollars! This type of electronic money dominates the supply of money– more than 93% of money is electronic. You’ll note that the only thing of value exchanged in the creation of new money is your promise to pay. Because the power of the banks to create money is almost unlimited, you’re exchanging something of value (your promise to repay the principal plus interest) for something created from nothing (the $10,000).
  • Banks create money from nothing and charge interest: First off, you should know that banks loan money they don’t have. When you take that loan, the money the bank gives you is newly created electronic money. And there is practically nothing limiting the amount of money banks can create, other than the amount of money people are willing to borrow. Reserve ratios have been used in the past to limit the amount of new money a bank could create to some multiple of an amount the bank had on deposit with the central bank, the Fed. But today, reserve ratios have largely fallen by the wayside in modern banking. Using sweep accounts, banks are able to lower the effective reserve ratio. Today, the effective reserve ratio is greater than 100:1, meaning banks can loan out more than $100 for every $1 they have on deposit with the Federal Reserve. So, if you and I were to go into the banking business (we’d have to hold stock in the Federal Reserve), we could loan out $100 for every $1 capitalizing our bank, meaning we could create $99 of new money for every $1 we originally had on hand. If you haven’t figured it out already, at 5% interest, we’d receive a 495% annual return on our $1! Clearly, it’s good to be the bank!
  • Increasing money supply causes prices to rise: Somewhere along the way, the meaning of the word “inflation” got changed. If you go back to the early 20th century, you’ll see that “inflation” used to mean an increase in the supply of money. And if you think about it, it makes sense. When you “inflate” something, you blow it up. You expand it. Well, prices don’t get blown up, prices don’t get expanded, but the money supply sure does. And it’s this inflation of the money supply that causes prices to rise.
  • Here’s a quote from Thomas Jefferson illustrating the use of the word “inflation:” …//

… (full huge long page with graphics and many more discussions).

Linked on my blogs with G. Edward Griffin – USA, and with Verleih und Rückzahlung von Krediten – meine Gretchenfrage, June 28th, 2010.

More Links:

The book: The Creature from Jekyll Island, 624 pages, 1994;


G. Edwar Griffin on wikipedia (last modified on 7 July 2010).

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