The Creation of Money And Illusion of Wealth

Excerpt from Steady State Revolution, 8 June 2009 - emphasis added

'...Banks create money out of thin air by loaning it into existence. Increasing the money in the market creates inflation. This also means the our system is required to continually grow in order to offset this inflation...

Who controls the creation of our currency? The Government? They print the money, but most of our money is digital. Actually, 90% of our money is created through commercial banks by being loaned into existence.

Take the example displayed in the Summer 2009 issue of Yes! Magazine:

“You earn $100 and put it in the bank and then…. The bank keeps $10 in it Federal Reserve account…. Then loans Susie $90, at interest. Susie deposits the $90 in her bank. That bank keeps $9 and loans Joe $81, at interest. See how it all adds up – for the banks. You have $100 in your account. Susie has $90 in hers. Joe has $81. There’s now $271 total in accounts that you and Susie and Joe can spend, and it all came from your $100 deposit. The banks have created an additional $171 by loaning it into existence.

Imagine this money trick over and over. If you do this operation 50 times, that $100 turns into $995.25 – $885.25 in loans, and your original $100...

As we gain interest on savings (or charge interest on debt) we are gaining new money in the market. What happens when more money is placed in a market? Inflation. How can we control inflation? Grow!! If our market grows at the same rate, there is no inflation. We have to grow in order to meet the demands of the greedy banks. Remember, inflation is caused by the banks making money out of nothing for their profit and at our loss.

More over, as the demand to borrow increases in boom times so does the money through the creation of so many new loans and the interest they accrue. These bubbles are created by the increasing amount of money being added to the market. The bubbles are popped when loans are foreclosed, causing the money supply to contact during a recession. The boom-bust cycles since the adoption of these monetary policies has been largely caused by banks creating large sums money out of thin air.

This is a major point in argument for the steady state economy and against the current, neoclassical economy. Money is a tool created to simplify and improve our exchanges, thereby improving our life. We value real things like food, water, clothing, family – real wealth; yet we try so hard to hoard small pieces of paper in big piles instead of the actual goods. This is what David Korten calls “phantom wealth,” not real wealth...

Money is a public service, created to improve our ability to make exchanges. Money should be a service provided by our government (the one run by its people).

The power of the creation of money should rest in the hands of a public agency, not a for-profit commercial bank. We as a community have decided to let the creation of money rest in the hands of privately owned banks. We as a community need to change were the power is stored and return it to our elected government.

There are many ways of doing this:

1. supporting local currencies
2. voting for banking reform
3 .demanding moving to a 100% reserve system, and
4. call for money creation to be controlled by an accountable, public-controlled organization (the government)'