Banks create money from nothing
Richard Werner, the German professor famous for inventing the term ‘quantitative easing’, says the world is finally waking up to the fact that “banks create money out of nothing” – but warns this realisation has given rise to a new “Orwellian” threat.
In an exclusive interview with The New Daily, Professor Werner says the recent campaigns around the world, including in India andAustralia, to get rid of cash are coordinated attempts by central bankers to monopolise money creation.
“This sudden global talk by the usual suspects about the ‘need to get rid of cash’, ostensibly to fight tax evasion etc, has been so coordinated that it cannot but be part of another plan by central bankers, this time to stay in charge of any emerging reform agenda, by trying to control, and themselves run, the ‘opposition’,” he says.
“Essentially, the Bank of England and others are saying: okay, we admit it, you guys were right, banks create money out of nothing. So now we need to make sure that you guys will not be able to set the agenda of what happens in terms of reforms.”
Professor Werner (pronounced ‘Verner’), currently the Chair of International Banking at the University of Southampton, is one of the first academics in the world to bring attention to the fact that banks loan money into existence. He has been arguing this for more than two decades, and has published several papers on the subject.
Two Australian economists, Steve Keen and Bill Mitchell, have also led the charge.
The old theory, taught in high school economics classes and to university undergrads, is that banks receive deposits and loan out of a percentage of that money, while keeping some in reserve.
The truth, according to Professor Werner, is closer to the following: A bank receives $100 from a depositor, keeps that $100 in reserve, and then creates $9900 worth of new loans and deposits. It may also create $15,000 in new deposits through its lending.
This is a rough approximation. The main point is that the banks do not lend existing money, but add to deposits and the money supply when they ‘lend’. And when those loans are repaid, money is removedfrom circulation.
Thus, the supply of money is constantly being expanded and contracted by banks – which may explain why the ‘credit crunch’ of the global financial crisis was so devastating. Banks weren’t lending, so there was a shortage of money.
By some estimates, the banks create upwards of 97 per cent of money, in the form of electronic funds stored in online accounts. Banknotes and coins? They are just tokens of value, printed to represent the money already created by banks.
its very important to understand..its magick..
“A bank receives $100 from a depositor, keeps that $100 in reserve, and then creates $9900 worth of new loans and deposits. It may also create $15,000 in new deposits through its lending.”
hey, presto!..get that in your head..
“By some estimates, the banks create upwards of 97 per cent of money, in the form of electronic funds stored in online accounts. Banknotes and coins? They are just tokens of value, printed to represent the money already created by banks.”