This is the companion article referenced in the linked article above. You can find all this same information on the Federal Reserve site (In case a person does not believe the Bank of England operates in the same manner - they pretty much do)that is in the first Bank of England article, but I find the Fed explains stuff in bits and pieces and in cryptic "Fedspeak". These authors, in what has to be an astounding moment of insanity for a bank, explain things in a manner that we mere mortals can actually understand it. Amazing. Although come to think of it the Fed does still use the "multiply up" explanation which will kind of get you to the same place but is kind of on the same level as explaining sex to a six year old. The explanation being not exactly technically correct, but enough to satisfy the not yet introduced to the ways of the world youngster. I guess the Fed maybe thinks of us as "children" when it comes to money matters and we are not entitled to the full, correct story. :-) This article is a more basic explanation of "money" but it does also explain that commercial banks do in fact "create" the vast majority of our "money" when they create loans. That means that nearly all the money in circulation at any particular moment has an interest charge being collected on it by some bank somewhere. The banking system essentially collects interest on our entire money supply constantly. We have no permanent money supply. It is all "IOU's" with interest being collected on almost all of it by the banking system. Is that really how it should be? Is it any wonder that the vast majority of the pubic is in debt beyond capability to repay? Money in the modern economy: an introduction John I like this part and is the gist of the whole article: -------------------------------- "Money today is a type of IOU, but one that is special because everyone in the economy trusts that it will be accepted by other people in exchange for goods and services. • There are three main types of money: currency, bank deposits and central bank reserves. Each represents an IOU from one sector of the economy to another. Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves."
what c ounts as money in a moderneconomy such as the United Kingdom, where 97% of the money held by the public is in the form of deposits with banks, rather than currency. When a bank makes a loan to one of its customers it simply creditsthe customer’s account with a higher deposit balance. At that instant, new money is created. Banks can create new money because bank deposits are just IOUs of the bank;
Edited by John Burns 10/21/2016 13:48
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Lending expansion and bank reserves dropping?
