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How do banks actually create money? We explain — The Economist (video 1 minute)
One minute. They get it right. Banks create new "money" simply by entries in accounts. No details of the process now, but at least they have the key point correct.
“A key point, but then they try to resurrect fractional reserve nonsense.”
Yes, I cringed when I heard that. When average people get the fractional reserve nonsense in their heads, they cling to it fiercely. No one can make them wake up.
Average people falsely think that money is physical and limited, and that banks lend out a portion of their deposits. Hence the nonsense about “fractional reserve banking.” But people also see videos like this one, which note that 97% of money is digital (the rest is notes and coins) and that banks lend out notes whose monetary value exceed banks’ deposits. How do people resolve this contradiction in their minds? By continuing to cling to fractional reserve nonsense, while accepting that they are too stupid to understand banking. They just know they are “right,” and that they are geniuses.
Among the peasants, financial illiteracy is willful and voluntary, and is a big reason for their enslavement.
In reality there are two ways that money is created out of thin air…
[1] Bank lending [2] Government spending
There are two ways that money is sent back into thin air…
[1] Paying off a bank loan [2] Government taxation
“And they get the origins story wrong, although that is less important.”
Yes. Banking is a system of credits, debits, and lending. Such systems go back to the dawn of civilization.
The video maker's belief that banks once lent out their gold reserves is another aspect of “fractional reserve” nonsense.
Another false belief is that humans conducted all transactions by barter, and eventually switched to money for convenience. Wrong. Money and credit have been around since Mesopotamia and before.
People who cling to such nonsense are not amenable to logic and reason. They are “right.” Period.
Indidentally I said above that, "Banking is a system of credits, debits, and lending. Such systems go back to the dawn of civilization."
In most historical cultures (ancient Egypt for example) writing began as a means of monetary or financial accounting, and only gradually expanded to become a means of communicating non-monetary ideas.
4 comments:
A key point, but then they try to resurrect fractional reserve nonsense. And they get the origins story wrong, although that is less important.
“A key point, but then they try to resurrect fractional reserve nonsense.”
Yes, I cringed when I heard that. When average people get the fractional reserve nonsense in their heads, they cling to it fiercely. No one can make them wake up.
Average people falsely think that money is physical and limited, and that banks lend out a portion of their deposits. Hence the nonsense about “fractional reserve banking.” But people also see videos like this one, which note that 97% of money is digital (the rest is notes and coins) and that banks lend out notes whose monetary value exceed banks’ deposits. How do people resolve this contradiction in their minds? By continuing to cling to fractional reserve nonsense, while accepting that they are too stupid to understand banking. They just know they are “right,” and that they are geniuses.
Among the peasants, financial illiteracy is willful and voluntary, and is a big reason for their enslavement.
In reality there are two ways that money is created out of thin air…
[1] Bank lending
[2] Government spending
There are two ways that money is sent back into thin air…
[1] Paying off a bank loan
[2] Government taxation
“And they get the origins story wrong, although that is less important.”
Yes. Banking is a system of credits, debits, and lending. Such systems go back to the dawn of civilization.
The video maker's belief that banks once lent out their gold reserves is another aspect of “fractional reserve” nonsense.
Another false belief is that humans conducted all transactions by barter, and eventually switched to money for convenience. Wrong. Money and credit have been around since Mesopotamia and before.
People who cling to such nonsense are not amenable to logic and reason. They are “right.” Period.
Indidentally I said above that, "Banking is a system of credits, debits, and lending. Such systems go back to the dawn of civilization."
In most historical cultures (ancient Egypt for example) writing began as a means of monetary or financial accounting, and only gradually expanded to become a means of communicating non-monetary ideas.
It's difficult to convince people that it's the bank who holds the "liability" when they make a loan.
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