What do a bank run and the way how money is created have in common?
of money is created by banks out of thin air
of which is used for speculation
of the population does not know these facts...
In 2012 in Frankfurt, a survey of a thousand citizens asked the question: “Who makes and distributes money? The vast majority of respondents thought that either the central bank or the government put the money into circulation and decided who would get it. But what has a bank run with a bank failure and various financial crises got to do with it?
This is the reality
Banks create new money when they make loans. Before the loan, this money did not exist. 97% of the money in today’s economy exists as bank deposits, while only 3% is physical cash. The money that banks create is not the paper money that bears the logo of the European Central Bank. It is the electronic deposit money that lights up on the screen when you check your balance at an ATM. Currently, this money accounts for over 97% of all money in the economy. Only 3% of the money is still in this old-fashioned form of cash that you can touch.
Do you think it is right for the commercial banks to do this? Because there is no law that authorises them to do so!
What is one of the negative side effects for the environment of this illicit activity? The failure of a bank is not due to new circumstances, but, like every banking crisis, always has the same cause! Banks lend much more than they have deposits. These loans, in turn, go most often for non-productive and also very profitable purposes, such as oil pipelines, chemical factories for pesticides, technologies for genetically modified plants or simply speculation with food. As soon as one of the deals goes wrong, it becomes public sooner or later. Customers start withdrawing their (real) money. Liquidity deteriorates. The crash accelerates as more and more people find out about it. The bank run is inevitable… The domino effect ensures that the wildfire spreads to other banks in no time. A financial crisis is the result…
Credit-driven money creation out of nothing knows only two states:
- either a mania or
- a depression
This is the kind of society we have to live in now. For decades, only up and down…