[Thanks to Ray and others]
I think we had this, or something similar, up at some point. But it speaks simply about some very important basics which desperately need attention.Why can banks legally create money out of thin air?
Why do governments borrow money from banks at interest to be paid by taxpayers, when governments could just make the money themselves?
How did the vampires come to run the world?
Ken said...
Basically, the banks only create money if there is an increase in debt. So if the government wants to restrict the amount of money all they have to do is to deter people from borrowing by increasing interest rates. That would also constrain asset prices. Actually at the moment in the US money is disappearing as deleveraging occurs and borrowings decrease.
Good points.
A more philosophical point is: how come they get to, and others don't? If you could just write "a million dollars" on a piece of paper and lend it out at interest, I think business would be easier. Who made the banks God and Creator of the money world?
5 comments:
People really don't understand what money is anymore.
Basically, the banks only create money if there is an increase in debt. So if the government wants to restrict the amount of money all they have to do is to deter people from borrowing by increasing interest rates. That would also constrain asset prices. Actually at the moment in the US money is disappearing as deleveraging occurs and borrowings decrease.
Good points.
A more philosophical point is: how come they get to, and others don't? If you could just write "a million dollars" on a piece of paper and lend it out at interest, I think business would be easier. Who made the banks God and Creator of the money world?
The economists, with our blessing. We were happy to live in a world with ever increasing debt and corresponding asset prices as long as it was in our advantage, and with about 2/3 of the population in most countries owning their own house (mortgaged for about half) most were happy with a system that had house prices double in 10 years. Now that house and other asset prices aren't increasing it just leaves people with a lot of debt, and it doesn't seem so attractive. Read Steve Keen's article on creation of credit and thus money http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/
Our man Eolake is not the only one asking such "how come" questions about money. See http://paul.house.gov/index.php?option=com_content&task=view&id=1998&Itemid=28
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