Money creation in the modern economy - Quarterly Bulletin

Some of the content is in this short video: ▶ this video Money is created by both the central bank and retail banks. When the Bank of England buys an asset, it pays in newly-created pounds. These pounds are an obligation of the central bank, i.e. a debt owed by the bank. So these pounds are 'central bank money'. When a commercial or retail bank gives you a loan, you have two accounts at the bank that move in opposite directions: - current account is credited by $X (bank owes you money) - loan account is debited by $X (you owe the bank) So the net effect is zero (the sum of all your balances with the bank is still the same as before the loan was made). But now there's more money in your current account, so there's more money available for you to spend. Money has been created. Even though this new money isn't central bank money: - it's denominated in the same units as central bank money (pounds) - it's almost as safe from default (it's protected by a deposit guarantee scheme) - you can use it to pay for things (bank transfers are widely accepted as a means of payment) In practice, there are capital adequacy requirements that limit how much banks can lend. They are required to keep a buffer between assets and liabilities (equity capital). As the bank's balance sheet gets bigger, more equity capital is required.

When a bank loans 10,000 dollars, the amount is credited to a checking account. It does not have to come from somewhere else. What use would a loan be if you kept it in your checking? Don't take my word for it, take it from the Bank of England's Quarterly Bulletin [0] "Banks create create additional broad money whenever they create a loan... it runs contrary to the view sometimes put forward that banks can only lend out deposits that they already have. In fact, Loans create deposits, not the other way around." [0] ▶ this video

There are two topics here: a) the time value of money, and b) the fractional reserve system. There is also a 3rd topic, which is inflation, which is implied in your question. Topic 1: The time value of money is the bit about "a dollar today is worth more than a dollar tomorrow". The reason why this is the case, is because if I give you $1 dollar today, and you give me $1 dollar at the end of the year (metaphorically "tomorrow"), than I would have missed out on the interest I could have earned by lending it to the bank (in a savings account) or the Government (in a bond). I hope this makes it clear why there is a greater benefit to receiving money now, rather than an identical sum later. Topic 2: This might be a mind-bender, but bank loans create money, not deposits. Don't believe me? Check out a Bank of England representative say the following in plain English: "...banks create additional broad money whenever they make a loan" "Now, while this is nothing new, it's sometimes overlooked as the main way in which money is created and it runs contrary to the view sometimes put forward that banks can only lend out deposits that they already have." "In fact, loans create deposits, not the other way around." Source: ▶ this video Sadly the resources I had pointing to the Fed saying this has been taken down. For more on this read the following: * Werner, R. A. (2014). Can banks individually create money out of nothing ( link ) * McLeary, M., Radia, A. & Thomas, R. (2014). Money creation i

Yes it's a multiplier scheme and if you squint just right, it's pretty much a ponzi too. But it isn't a pedantic way of restating "lend out". Discussion of the issue is often fraught with accusations of conspiracy theory. Austrian economists (widely regarded as kooky by the establishment) have a bunch of books related to these issues perhaps the best of which is Rothbard. _0 link _1 link _2 link _3 ▶ this video

In basic terms, inflation is the loss of purchasing power due to an increase of the monetary supply faster than economic growth. In plain English, this is where more currency is chasing the same number of goods and services. This means your unit of currency buys less over time. What is 'wrong' with this is that inflation is a transfer of wealth—some people even go so far as calling it theft or a 'stealth tax.' This is because the purchasing power that you had in your unit of currency isn't 'lost', it is actually transferred to the institutions creating the money. If you had $1 worth of pennies in your pocket, and inflation was 1%, it is like an invisible hand reaching into your pocket and stealing a penny. Do that a hundred times and you can 'create' $1, but by the time this is done, you will find that your $1 can only by 99 cents worth of goods and services now. In a fiat based, fractional reserve system that we have today in the West, the institutions that are reaching into your pocket (AKA creating money) are central banks and commercial banks. For example, say the Fed (the central bank for the US) creates an initial $10m of reserve currency, this is then used by commercial banks to 'create' an additional $90m through loans from that $10m reserve. It is therefore commercial banks, not central banks, that predominantly create currency in society—and depending on growth and circulation (economists call this velocity) in the real economy, creates inflation. You see if the cre

You can't miss the accompanying videos that they recorded down in the basement: 1) link (beginner) 2) ▶ this video (advanced)

This is not exactly secret knowledge you have to be a guerilla to let out. I mean, the bank itself does that in formal bulletins released on its website link and even produces video for people that don't like reading economic papers ▶ this video