Where does money come from? Most people would say that all the money comes from the government. We have all seen the clips of the US Mint cranking out coins and the printing presses spitting out the George Washington's. This is what I was taught in school and is probably still being taught but, it is far from the truth. Banks create money, not from their own earnings or from the funds deposited by customers, but from the borrowers' promises to repay loans. Most importantly, borrowers not only promise to repay, but to repay with interest, and so the bank writes the amount of money of both into the borrower's account. Money created on the promise of repayment. No printing, no stamping of coins, entered into a computer at the bank and magically more money is on the books. What this all amounts to is that banks can create as much money as they can loan. While doing some research, I ran across Paul Grignon the author of Money as Debt. This is an animated 5 part video of the history of money and the inner workings of banks. Don't be intimidated because this video is animated, it was done well and there is a world of information. Mr. Grignon did his homework and produced a very good documentary. Videos below.
"Each and every time a bank makes a loan (or purchases securities), new bank credit is created — new deposits — brand new money."
Graham F. Towers, Director, Bank of Canada
"The process by which banks create money is so simple the mind is repelled."
John Kenneth Galbraith, Economist
"If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible -- but there it is."
