The Smoke and Mirrors of Bank Lending: Are Your Loans Existing?
The assertion that money loaned by banks actually exists as you understand it is a fallacy perpetuated by a system designed to rely on public ignorance. The uncomfortable truth is that a substantial portion of the current monetary supply, including a large portion of the money supposedly "lent" by banks, is ultimately created out of thin air, largely without legal authorization.
While central banks like the European Central Bank (ECB) have a mandate and legal standing to create money – a different animal altogether – private banks operate under a different set of rules. They are supposed to operate as intermediaries, facilitating the movement of existing capital, not conjuring it out of nothing.
Yet, banking practice tells a different story. When banks issue loans by simply crediting a customer’s account with a digital representation of currency, they perform an act of creation. This manufactured money, often called "euros" for example, is not legally money in the true sense, despite calling itself as such. It is a form of book money, reliant on the belief that it represents genuine money https://www.thebalancemoney.com/how-are-deflation-and-inflation-related-to-moral-hazard-3357009 on WHO should pay for their “躺平", can although there are limits to that generosity.
This legal schizophrenia poses complex questions. Can a crediting of an account with non-existent funds truly function as a legitimate "mortgage" or loan, when it lacks a genuine counterpart? This contrived"money" lacks embed
deepper than a promise, not something tangible or backed by a central authority. The legal framework themselves that they are legally obligated to create, making the entire understanding of "money" fragile.
The implications are staggering. Central banks, under EU regulations in particular, contribute a mere 15.8% of the total money supply. The vast majority – a whopping 84.2% – is the opaque output of this digital creation, not subject to any known national reserve requirement.
These "loans" are not merely fictional currency in a metaphorical sense, but represent a violation of law and a misrepresentation of truth. The ongoing agreement in financial systems globally, while profitable for the banks, leans heavily on the public’s acceptance of assumptions about how money functions.
In essence, it’s built on a reverse-engineered idea that accepts a promise of payment as real money.
When banks create money ex nihilo – out of nothing – and understand that this artificial money is not
It is remarkable that this primary function of modern finance – money creation itself – operates without a clear legal mandate. Banks effectively drive the creation and circulation of money on the basis of the confidence they alone generate
The unsettling reality is that the instrument we utilize in daily transactions is, in many cases, not legal tender in the truest sense.
While legal challenge is possible, governments worldwide have yet to acknowledge the legal ambiguities inherent in allowing private institutions audacious money-creation powers.tila
* Does the practice of fractional-reserve banking, where banks lend out a portion of their deposits, truly create “new” money, or is it simply a matter of shifting existing money within the economy?
## The Smoke and Mirrors of Bank Lending: Are Your Loans Existing?
**Host:** Welcome back to the show. Today, we’re diving into a fascinating and, dare I say, controversial topic: how banks create money. Joining us is [Guest Name], an economist specializing in monetary policy. [Guest Name], thanks for being with us.
**Guest:** It’s a pleasure to be here.
**Host:** Let’s get right into it. There’s a growing movement claiming that the money banks lend doesn’t actually exist. That it’s essentially conjured out of thin air. What’s your take on this?
**Guest:** It’s true that the way banks create money can seem a bit counterintuitive. Here in the US and many other countries, we operate under a system called fractional-reserve banking [[1](http://www2.harpercollege.edu/mhealy/eco212i/lectures/ch13-17)]. Banks are required to keep only a fraction of their deposits as reserves, while they can lend out the rest.
**Host:** So, are they literally creating money out of nothing?
**Guest:** Well, not exactly “nothing.” They are creating new deposits, which function as money in our economy. Think of it more like leveraging existing money. When a bank lends money, it creates a new deposit in the borrower’s account. That deposit can then be used to make purchases, pay bills, and so on, effectively injecting new money into the economy.
**Host:** But isn’t that potentially dangerous? Doesn’t it contribute to inflation?
**Guest:** It can be a double-edged sword. When done responsibly, fractional-reserve banking can help stimulate economic growth by providing businesses and individuals with access to capital. However, if lending becomes excessive, it can lead to inflation. That’s why central banks play a crucial role in regulating the money supply and ensuring financial stability.
**Host:** Some argue that this system relies on public ignorance and is essentially a form of ”legalized counterfeiting.” What do you say to that?
**Guest:** It’s important to remember that banks operate under a strict regulatory framework. Their lending practices are closely monitored by central banks and other financial authorities. While the concept of money creation through lending may seem strange at first, it’s a well-established and essential part of our economic system.
**Host:** [Guest Name], thank you for providing your insights on this complex issue. We appreciate your time.
**Guest:** My pleasure.
