It might be hard to absorb, but the fact is undeniable. Banks create money out of thin air. When you go to your local branch and apply for a mortgage loan to buy a house or apply for a personal loan to buy a car, you might think that the bank needs to have that money in its vaults to be able to lend it to you. Wrong.
In both cases, if the loan is approved, the money is created by crediting the amount to your bank account via the bank’s computer. That’s it. From that point on, you owe the bank real money that you must work for, to repay the loan, plus the interest, which the bank records as an asset it then owns.
Billions of dollars of new money are created every day by our private banks to service our desire for goods, for property, for investment, for wealth creation, all of which comes on the condition that, by accepting the money, we promise to repay it with interest, even though the bank never actually had that money in the first place.
So off to work we go, earning money by producing goods and services that we need and want, to improve the quality of our lives, all of which is predicated on the principle that we must repay this money lent to us, money that was created from nothing. The underlying principle is that money created from nothing, creates more money.
If that doesn’t hurt, try this. Sovereign governments through their Central Banks can do the same thing. Taxation isn’t necessary to fund government services. Governments can create their own money to fund all their needs and they can do it without charging interest. They can, but they don’t.
Governments fund all infrastructure projects, all our hospitals, our public transport needs, our schools, universities, scientific and medical research, all at the touch of a keyboard wired to a computer. This funding passes to the banks and the business world to kick-start the projects that provide the services we need.
This generates the employment needed for people to earn a living, to repay the monies they have borrowed from the banks and to pay the taxes governments charge us.
By this circuitous route you can see that nearly all money created eventually finds its way back to the people who created it.
If, by some chance there is money that doesn’t find its way back, that is, if people have any money left over, they can deposit it into a bank account, save it and the bank will pay a small amount of interest on those savings gained from the interest and principle they receive from you when you repay the loans they gave you, which they created out of thin air.
And I bet you thought it worked the other way round. Can anything else make it more obvious that all money created this way is geared to trickle upwards to a limited number of beneficiaries at the very top of the wealth tree?
It’s not a ponzi scheme, as some try to assert because it’s not based on faith. It is a scheme, nevertheless, specifically designed and structured to create obscene wealth for the favoured few at the expense of the many. We play our part because we want our share, based on the effort we put in.
We want a house to live in, a car to drive, a school to send our children, a hospital to look after us when we are ill and food and clothing to keep us warm. We want these things to sustain and, if possible, improve our quality of life.
So, if this all works to everyone’s benefit, and the government provides various safety nets for when we are sick, or unable to work or too busy raising and caring for our children, what’s the problem?
In a word, the problem is inequality. The scheme has gotten out of hand. Those at the top have become excessively greedy and want more and more. They get more by taking from those who have less and the government allows them to do this. That is the problem.
This whole idea of government having to borrow to fund services and build infrastructure, is a fraud. Sovereign governments never have to borrow anything. They can simply create the money to do these things.
It enables the banks to continue creating money that ultimately ends up back in the hands of government or in the hands of the super-rich who control the supply of goods and services.
By having us believe they must borrow, they control the prices of the goods we buy and the cost (interest) of the money we borrow and ultimately, the quality, or inequality of our lives.
All of this happens because banks and governments in tandem, create money out of thin air to fill the pockets of the rich, the ones who own the banks, who own the industries and the services we need and use.
If there was a modicum of honesty in any of these institutions or those that run them, all this would be common knowledge. But instead, most of us believe the very opposite.
It is time this truth which is self-evident was more broadly shared. But that will only happen from the ground up. For too long governments have blindsided their constituents with false notions of how money works.
Those of us who understand this, and feel passionate enough to explain it, need to become more aggressive in the way we espouse it.