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Why Do Banks Make So Much Money?

Posted by Matt Beer - February 10, 2013 - Communication+, Economics, Economics Level 1, Level 1
0

http://www.youtube.com/watch?v=DOa8U0yixgQ

It’s hard to believe but banks have the licence to print money, or rather the licence to type it into a computer screen every time some one takes out a loan. It defies common sense but stop and think about it. If an economy grows, the money supply must grow too. Someone needs to inject this new money into the system. Normally you would think it would be the government, but they only create a small fraction of new money (physical money and electronic base money). Money has to be created from nothing, that’s what creation is. The unbelievable fact is that banks are licensed to have this ability. The more unbelievable fact is that no one talks about this in all the economic debates.

If you stop and think about it, the implications are mind boggling. Banks have huge control on the direction an economy takes. They like to loan to safe investments such as property and not to risky investments such as small businesses. This is why house prices are so unaffordable. Also when they create money through a loan, they charge interest. This interest does not exist. There is a mathematical flaw in the system which means our level of debt will always get bigger. And then there are the ethical concerns. What is the moral obligation to pay back a debt of money that was created out of thin air? Why does a sovereign nation need to borrow money from banks and be charged interest when they could create this money themselves at no interest. Why do we need to bail out the banks that provide this money creation when governments could claim back this power? Why don’t governments stimulate their economy by giving money directly to it’s citizens instead of handing it to banks to lend out to it’s citizens.

I’m still wrapping my head around this but it’s clear that this is a massive story that would shift the whole “cut government spending” debate on it’s head. Ask yourself why this issue of money creation is not talked about in the mainstream media.

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