The commonly-held view that banks merely lend the deposits of their customers, and profit from the difference between the interest paid to depositors and the rate charged to borrowers is probably the most misunderstood aspect of money and banking today. Banks CREATE credit which is merely a book-keeping entry.Yes, that is literally creating money “out of thin air”.
This is achieved through the practice of Fractional Reserve Banking. It is literally legalised fraud. UK Banks lend out between 33 and 60 TIMES the amount they hold on deposit.
That's not a misprint they “lend” out far and above what they actually have on deposit.97% of our money supply is created as interest-bearing debt. This debt is simply bank credit, created by private commercial banks for PRIVATE PROFITS. The remaining 3% of the money supply is cash. As bank notes and coins are created by the state, they are supplied debt-free. In fact, banks have to purchase cash from the Bank of England and the Royal Mint and pay the face value for them. The difference between the cost of producing cash and the face value is paid directly to the treasury. This profit is called Seigniorage. This money can be used for public services – without resorting to borrowing or taxation.The problem today is that only around 3% of our money is cash.
Whilst banks (nor anyone else) cannot counterfeit notes and coins, banks are legally allowed to CREATE ‘credit’. This means that ALL new bank “loans” are actually CREATED as a book-keeping entry only. Notice how most of us rarely need to convert that ‘bank credit’ into actual legal tender, or cash. (because of cheques, debit cards, bank to bank transfers etc). We’re merely passing around what is called ‘non-cash’ money.It’s because there is very little cash being used today. For you see, if 97% of our money is created as a debt by private companies, can you not see where the REAL source of the problem lies? Address this and the national debt can be paid off, booms and busts can be eliminated, and taxes can be slashed without reducing public services - all because the interest will no longer be payable.Think about it this way: Why does the nation have to borrow 97% of it's money supply from private companies? It doesn't.
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