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Five random, but important, thoughts about money and banking
1) Money and Banking Myth #1 -- "Banks make money by lending their own money and money they
borrow from depositors and charging interest on those loans". In fact, banks make money by creating
money and lending that money out at interest. Banks can create and lend out 10 times as much money
as they have as the sum of (a) capital (their own invested money) and (b) the deposits from their customers.
2) Money reformers are, for the most part, feckless -- I am growing suspicious of many people who call
themselves money reformers. They seem to be more interested in (a) keeping the public riled up than (b)
presenting reasonable, well-thought-out solutions to our banking and money systems.
It is astounding that the reformers do not simply suggest that we follow the Constitution and put the control
of our money under Congress and the checks and balances that will naturally follow.
The reformers should also focus on the fact that the main problem obviously is that the Federal Reserve
System, a private organization has no checks and balances that protect the interests of the federal government
or the people of this country.
3) The âcreation of money out of nothingâ through loans is often bemoaned by reformers, students and
analysts. But we think that creating money out of nothing is wonderful -- as long as (1) each debt is backed by
good collateral (assets or income) and (2) the lender suffers if the debt is not paid back. The system should be
set up that way and it would undoubtedly work if it were followed. But The Federal Reserve has not set up a
system that (a) makes sure all loans have good collateral and (b) the bank / lender suffers when loans go bad.
4) The other big problem is that the Federal Reserve System charges the government interest on the money
it lends to the government -- and this in the face of the Constitutionâs mandate that Congress should control
the money supply.
5) The present money system is a disgrace. The publicâs acceptance of the system is amazing. It is probably
accepted because hardly anyone understands how it works.
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