How Do Banks Create Money?

how does a bank create money

When you get approved for a car loan or a home mortgage, where does that money come from that the bank “lends to you”? Is the bank lending you its own core capital? Whose money is being lent to you?

13 STAT 99 is the National Bank Act. This document clearly states that a bank in the United States CAN NOT lend its own capital. A bank can not lend out its own “money”, period.

The intent here is to prevent runs on banks and banks collapsing if/when loans go bad. If a bank lent out its core capital and those loans went bust, then the bank would be wiped out. Ok, so then what? What is the bank lending you when you take out a loan?

The answer is not “money” or anything that the bank owns, yet you pay back the bank principal and interest plus fees and potential penalties and destruction of your life if you fail to comply. When the bank lends you “money”, what is really happening is that the bank is creating new money with an accounting entry. The bank credits your account with a new balance equivalent to the loan. You now pay that back plus interest and fees. The bank created this money literally from nothing.

Think about this. If you loaned someone $100 at 6% per year, then you would expect to be paid back $106 by the end of that ensuing year. If there were only $100 total in the entire economy, then how would that person come up with $106 to pay you back? The current system MUST “create new money” in order to continue and survive.

It is a never ending spiral of banks “creating new money” via loans so that enough new money is created to mathematically be able to pay back all of the existing money/debt plus interest. When money is intentionally held back, then defaults soar and the system contracts sharply. New money MUST be created to keep the game going. Every time you swipe a credit card you are authorizing the Trustee (bank) to create new money. Ever wonder why credit cards are pushed so hard?

You are borrowing YOUR OWN “money” yet paying it back to the middleman (bank) plus interest and fees and penalties potentially. The bank did NOT lend you its own money. Aside from this scam the obvious implications are and have been inflation and loss of purchasing power. It’s no wonder people are flocking to Bitcoin and other services like Lolli. Even social media companies are trying to create new monetary systems.

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