Symphonious

Living in a state of accord.

The truth is out: money is just an IOU

The truth is out: money is just an IOU, and the banks are rolling in it:
What the Bank of England admitted this week is that none of this is really true. To quote from its own initial summary: “Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits” … “In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.” In other words, everything we know is not just wrong – it’s backwards. When banks make loans, they create money.
The complexity and subtlety in our financial system is delightful and frightening all at the same time. Almost everything has multiple contributing factors that are impossible to isolate and subtle shifts in world view like this can have huge implications on decision making.
Category: Finance
  • Nick Zeeb says:

    They should invent something that is like money but with a limited supply instead of just being made up every time someone wants to borrow to buy an overpriced house. Just to be on the safe side, they should also put it beyond the control of central banks :-)

    March 19, 2014 at 8:08 am

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