Money Creation: Banking, Fiat Currency, and Economic Impact

The money system creates 97.4% of the total money supply through commercial bank money, impacting national and international levels.

### The Mechanics of Money: Unveiling the Hidden System That Drives the Economy
* 💰 Money is created through a complex system where **central banks, commercial banks, and the government play key roles**.
* 🏦 Commercial banks create the majority of money through loans, while central banks create **central bank reserves** that facilitate **interbank transactions**.
* 📈 The current system requires **ever-increasing debt to sustain economic growth**, leading to a cycle of **boom and bust**.
* Historically, money was tied to commodities like gold, but since the collapse of the gold standard, it is based on **trust and confidence**.
* 📉 Rapid credit expansion can lead to **inflation**, but the way inflation is measured often fails to capture the **real impact on people's purchasing power**.
* 🏠 Rising house prices, while making homeowners feel wealthier, do not create **real economic value** and contribute to **wealth inequality**.
* 🌐 The global monetary system has undergone significant changes over the past century, from the **gold standard** to the current **fiat money regime**.

### The Impact of the Monetary System on Society and the Economy
* 💸 "Money that can only be spent on one thing, such as housing, leads to **price inflation**."
* 🏠 Speculative credit created by banks is a main driver of **housing booms**.
* 🏦 Banks have an incentive to invest in housing rather than productive sectors due to the **lower risk**.
* 📉 Bank-created money for non-productive usage causes **real inflation** and a **decrease in the standard of living**.
* 🌍 The monetary system allows the banking sector to **extract wealth from the economy**, contributing to **income inequality**.
* 🏦 "Private banks creating money as debt leads to the **continuous growth of debt** and the economy's **dependence on it**."
* 🏦 "The government's response to bank bailouts is to **shift debt from its account to the public**, leading to a **regressive policy framework**."
* 🏦 "Reforming the monetary system to prevent banks from creating money as debt is **crucial to avoid future financial crises and address social issues**."
* 🌐 "The way money works can transform society, and **complementary currencies can help build local economies and support community businesses**."
* 🏦 "Bank runs can take various forms, such as **withdrawing cash** or **moving money to smaller banks**, and they can **challenge the dominance of large banks**."

### The Current Monetary System: A Chaotic and Unfair System that Benefits the Wealthy
* 💸 The modern financial system operates without a gold standard, and exchange rates are determined by the market based on **supply and demand**.
* 🌍 The foreign exchange market is the **largest and most liquid market in the world**, with **$4 trillion of currency exchanged every day**.
* 🏦 Private banks have the power to **create money out of nothing**, and they often use this privilege to **make risky investments and fuel asset bubbles**.
* 🏛 The current monetary system is neither **stable nor fair**, and it concentrates **wealth and power in the hands of a few**.
* 🛡 To protect themselves from financial speculation, vulnerable countries accumulate reserves of **foreign currency**.
* 🌍 Many of the world's financial crises have been caused by **rapid withdrawals of currency** or the currencies of an entire region, a phenomenon known as **financial warfare**.
* 🏦 The banking lobby is a powerful force that **resists meaningful reforms to the financial system**.
* 👥 Monetary reformers advocate for **democratizing the money supply** and putting the **power to create and allocate money in the hands of the people**.

97% Owned: The Money System | Finance Documentary Film (Netflix)

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Independent POV

Money is created through commercial banks, with the majority (97.

4%) of the money supply being commercial bank money, while only 2.

The profit made by the government through issuing currency, known as seigniorage, has amounted to about £18 billion in the last 10 years.

The power to create money was taken away from commercial banks and given to the Bank of England in 1844, leading to the dominance of digital money in today's economy.

Private banks, not the government, are responsible for the vast majority of new money in circulation, created through loans and accounting tricks.

This process is poorly understood by the public, with many misconceptions about how banks operate.

The amount of money created by banks has skyrocketed in recent years, leading to a significant impact on the economy and society.

The Impact of Allowing Banks to Create Money

Banks have the power to create money through issuing loans, leading to a cycle of increasing debt for the economy.

This system results in a continuous boom and bust cycle, as easy borrowing leads to over-indebtedness and, eventually, financial crisis.

The practice of bailing out banks perpetuates this unsustainable system, ultimately requiring a separation of money creation from banking activities.

The Role of Central Bank Reserves in the Financial System

Commercial banks use electronic cash, or central bank reserves, to make payments to each other, which are held at the Bank of England.

The amount of central reserve currency held by settlement banks has significantly increased since the financial crisis.

These reserves play a crucial role in facilitating interbank transactions and ensuring the stability of the financial system.

The Impact of the Bretton Woods Agreements

The Bretton Woods Agreements, established after World War II, shifted the global monetary system to be pegged to the US dollar instead of gold.

This eventually led to the collapse of the gold standard in 1971, resulting in the modern era of the financial system and the emergence of fiat money.

The agreements also marked the beginning of the exponential growth of money creation and the need for credit expansion in the global economy, as seen in the recent call for a $100 trillion credit expansion at the World Economic Forum.

The Impact of Housing Market on the Economy

The housing market's reliance on speculative credit has led to a massive housing boom, driven by banks' preference for mortgage lending.

This has created a situation where houses are seen more as an investment than as places to live, causing a housing bubble and inflation.

The expansion of the housing market has been a deliberate strategy by governments to increase monetary power, but it reflects a weakness in challenging financial markets and promoting productive investment.

The historical perspective of financial bubbles, from tulips to housing, highlights the role of the housing market in expanding the money supply and creating relative power, without investing in productive growth.

The Impact of Credit Regulation on Economic Growth

Directing money into productive investments can prevent inflation by stimulating job creation and purchasing power.

Historical examples, like the East Asian economic miracle, demonstrate the success of targeted government intervention in credit allocation.

The current system of bank-created fiat currency is leading to a decrease in real income and a growing gap between the rich and the poor.

The Impact of Banking and Debt on Society

The government's response to bank bailouts has led to a shift of debt from the public to the private sector, disproportionately affecting the most vulnerable individuals.

The increase in private sector debt, driven by the privatization of resources and industries, is creating a financial boom but also leading to excessive and unsustainable debt levels.

The current monetary system, which allows banks to create money as debt, is contributing to widening income inequality and placing a heavier financial burden on the poor.

The Impact of Money Systems on Communities

Traders focus on making money regardless of the economy's situation, while the banking crisis led to a significant increase in poverty and mortality.

The current money system favors large businesses, causing wealth to leave communities, but alternative local currency systems aim to improve community relationships and support independent businesses.

These alternative systems allow for the preference of local businesses over trans-national corporations, keeping the wealth within the community and avoiding offshore accounts.

The Impact of Bank Runs and Currency Systems

Bank runs can take different forms, including cash withdrawals and shifting money to smaller banks, impacting the economy.

International bank runs can have catastrophic effects, as seen in the September 2008 meltdown.

When it comes to currency systems, trade imbalances can lead to a need for foreign reserves, and the lack of a mechanism to reconcile these imbalances can result in currency wars.

The Impact of Currency Wars on Global Economies

Currency wars are a competitive devaluation strategy used by countries to boost their exports, leading to a chaotic and anarchic global financial system.

The modern financial system has no defined standard, allowing the market to determine exchange rates, which has led to the foreign exchange market becoming the largest and most liquid in the world.

This volatility in the market can have a detrimental impact on small and developing countries, leading to fluctuating financial flows and potentially making them even poorer.

The Impact of Financial Contagion on Global Economies

Financial contagion can rapidly change beliefs in the market, leading to instability and rapid currency withdrawals.

This process has greatly benefited major financial institutions and led to the expansion of the financial sector.

The IMF's Structural Adjustment Programs have been imposed on many countries, leading to decreased public spending and a dependence on the global market.

The Impact of International Monetary Fund Policies on Developing Countries

The IMF's push for lower taxes for multinational corporations can leave developing countries with almost no tax base.

The financial innovations and deregulation since the 1970s have led to a chaotic and unstable financial system, culminating in a spectacular crash in 2008.

This system is designed to make the rich richer at the expense of the majority, leading to a lower standard of living for most citizens.

The Case for International Currency Reform

A new international currency backed by scarce and valuable resources like renewable energy or a basket of commodities could drive investment in these crucial areas.

Private banks' ability to create money out of nothing has led to financial instability and the misallocation of funds, highlighting the need to take away this power and democratize the money supply.

Democratizing the monetary system would put the control of money issuance and allocation back into the hands of the public, away from unaccountable private organizations, and potentially provide the funding needed to transition to a more sustainable economy.

Reforming the Monetary System: A Call for Change

The current banking system's power to create money is being abused, leading to the need for reform.

The Money Reform Party advocates for transparent and democratic allocation of funds to prevent the system's abuse.

Introducing person-to-person banking and currency exchange, as well as utilizing the internet, could offer alternative monetary systems for the future.

The banking lobby holds significant power and influence, particularly in government decision-making.

The Independent Commission on Banking has made recommendations for banking reforms, aiming to prevent future bailouts and create a more stable financial system.

The excessive wealth and influence of the banking industry have led to a situation where the public is held hostage by their actions, leading to increasing inequality and potential economic crises.