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:joy:
It must come from somewhere even if it’s just numbers on a spreadsheet.
The Bank of England only creates base money and cash. The rest, about 97%, is digital fiat money created by private banks when they make loans. It requires an exponential increase in the money supply to cover interest payments. If you remember anything about math then it’s obvious that this is not sustainable for ever.

If you want to boil it down to the single individual case then it looks like that but the reality is that you wouldn’t have access to your full £100 because the bank don’t have it. That’s where they need a load of savers and a load of borrowers to help balace things out in the individual cases. Even then it relies on the fact that not all customers do the same thing at the same time.

Over-simplifying things like this tends to be a bit misleading.

Exactly, the problem is that the money in the savers accounts is just money that someone else borrowed at some point and is repaid with interest which requires someone else to borrow more.
Hence the exponential component, which will not be sustainable indefinitely.

Not really, I don’t see any requirement to “borrow more” just to pay interest. Not for anyone with a modicum of financial control, anyway.

(I do agree that if that’s what happeed universally we would be in trouble, however.)

I wasn’t offering any reviews or opinions of the system, if anything I agree with you that it is unsustainable in the long run but precisely because of the fact that no money is created; if it was, there would be no problem.

I was replying because I feel someone was erroneously corrected.

It doesn’t matter whether it’s physical £20 pound notes or numbers on spreadsheets, no money is created. To then correct someone and say that banking would be rosy if people stopped believing this truths is bit unfair.

Thats my fault, it would go a long way towards changing the system though.

It’s clearly not my money they lend out since it still sits in my account and I can use it anytime.
Saying banks lend savers money is not really true, they use savers deposits as the reserve to credit borrowers accounts with new money. Otherwise my savings would not be available to me while it is lent to someone else.

I understand that they rely on people not wanting to withdraw at the same time so they can get away with it, but they still create that money and demand interest which they do not create.

If we all wanted to pay off our debts it would take a lot more than all the money in circulation.

I think my part in this discussion is done.

You obviously have your own feelings on how all this works but it always comes back to somehow creating money which simply doesn’t happen. (Other than the government magic money tree, of course. :smiley: )

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My last comment and I’m also out.

Banks creating money would be quantitative easing on steroids. The pound would end up being like the old Zimbabwean dollar, we’d all walk about with trillion pound notes in our pockets.

Your money doesn’t get locked up into its individual vault to collect cowebs, your money goes into a massive central pool which the bank uses for its daily running. A bank is more like a pulsating heart, lots of money coming in and out and as long as we continue pedaling, the machine will just keep on chugging along, stimulating the economy.

You can withdraw money, not because this is separated into an individual vault just for you, but because your withdrawal is an insignificant fraction of the overall ebb and flow of the bank’s balance.

Surely this contradicts your “creation” theory, if money was created then the money would be there to pay the debts? :thinking:

I’ll just make a last one too

So you’re belief is that all money in circulation is created by the Bank of England.

Sorry to burst your bubble but this is simply not true.
It’s also easily verified if you’re interested.

You guys really dont know how modern banking works ?? No the fractional reserve does not mean they must hold a fraction back…

Person 1 walks into a bank, they deposit 100…

the bank now has 100… They may lend out (create) money up to thier reserve requirement… if the reserve requirement is 10:1 (it isnt its much less) they can now create and lend out 1000.

That 1000 is lent out to people (spent) who all go and deposit it into bank account… Which in turn is deposited into accounts.

This is why even a small lack of faith in a bank which causes a shrinking depositor base is so punishing, the reserve ratio crashes… Also this is why credit and a populations desire to borrow rather than save has such a direct effect on M1 money supply.

Its also why a Banking license is so coveted, it does confer the ability to simply ‘create money’, which isnt done by the central bank (other than physical notes and coins which is only a small part of the money supply) directly. The central bank sets interest rates, ie the ‘price’ of money, which in turn effects on the desire to borrow and spend.

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Thank you :blush:
I needed some backup, was feeling a bit lonely there. I thought this stuff was general knowledge :wink:

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Positive money have some useful videos on this topic explaining how the banks work.
They are a campaign to change the banking system so that money creation is done to allow the government to spend on useful things in the economy rather than quantative easing which primarily inflates the markets.
http://positivemoney.org/videos/