For quite a long time, a partial bank reserve and a network of banks subordinate to it dominated all over the world. All the money from gold that provided the loan funds was destroyed. And the very essence of money has changed significantly. Now real money is someone else’s debt. If earlier, dollars made from paper were debt receipts, thanks to them the investor had the right to demand their value in terms of gold or silver, but today dollars, whether digital or paper, can be exchanged for other exactly the same money.
Private banks used to issue loans with banknotes of the same banks, so the borrower had the opportunity to refuse such a payment. This rule is still valid. Credit funds of non-state banks can be cashed in the currency of any state. It can be all that can be considered money. The law, which was created by state authorities, states that borrowers are required to consider such banknotes as a debt payment and to accept them without question. Otherwise, court proceedings are possible.
Many people ask the question: if money is created by banks with the help of the country’s authorities.
How much money is really exists?
Previously, the availability of existing money was actually limited to the amount that could be used as money. To create money from precious metals, it was first necessary to extract these metals. But now everything is completely different. It turns out that someone’s new debt is money, and they are created for it. As soon as a person took a loan from a bank, new money immediately appeared.
I think all this is normal. A businessman buys a truck on credit and his loan is secured by a real asset – a car, the money was created by the bank for the property. But he must return the bank more than he took, taking into account the loan interest. Mortgage interest leads to inflation, and inflation steals some of the results of our labor through the depreciation of money. It would be possible to give this businessman an interest-free loan secured by a truck, approximately 80% of its value, and he could contribute 20% himself and then all the profit would have remained with the businessman, and so the bank takes part of the results of his work, only by that the bank makes money.
Funny picture, isn’t it.
Each time a bank gives a loan, a new collateral obligation is created, a new bank account, that is, new money.
Graham F. Towers
Bank of Canada Manager
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