Money Out Of Thin Air
“Money as wealth is an illusion”
What I find fascinating is that most people naively believe that money — nothing more than a trust-based ticket for acquiring other things of value — is limited in supply and backed by some real wealth somewhere else, like gold. It isn't.
In fact, money in today’s debt-based fiat money system is mostly derived as loans by private banks — it is literally loaned into existence. There is no real value being created anywhere on the planet that backs up that new money!
The main reason our economy is so loaded with debt is because it runs on a money system that is itself debt.
When you walk into a bank to take out a loan, you probably think that the bank is lending you money it has in its reserve. That is, money collected from other people’s deposits and stored in a basement vault somewhere.
But that’s not how it works at all. Banks are only required to hold reserves worth about 10% of the money they lend out, or even less. This is called ‘fractional reserve banking’.
More than 90% of the money that’s presently circulating in our economy is created in this manner — out of thin air.
Think about it: it means that banks effectively sell a product (money) to us that they produce out of nothing with a few keystrokes, for free. And then, we have to go out into the real world and extract and produce real value to pay it back.
So contrary to the common belief that governments create money, virtually all money spent in the economy is created by private commercial banks when they extend credit to borrowers.
Why does this matter? Because private commercial interests, not public benefit, then play an outsized role in deciding which investments to support.
For this reason, investment dollars have historically tended not to flow to projects that would support the long-term protection of the assets on which basic economic services depend, such as low-carbon technologies and infrastructures, resource productivity improvements, protection of ecological assets, and the maintenance of public spaces.
In other words, when money is created, short-term private gain gets prioritized over long-term public security.
At the end of the day, money and finance play a major role in influencing decisions on consumption, production, investment, employment, and trade through careful management of interest rates and money supply and the involvement of central banks, commercial banks and other financial institutions.
And money, as a claim on future energy and resources, is increasing exponentially, while at the same time energy and resources — real capital, real wealth — is decreasing. So our current extravagant debt-fueled consumption levels are being temporarily and artificially propped up and supported by banks creating new money in the form of new debt — and not by the discovery of any new real wealth anywhere on the planet.
And when the Federal Reserve — a federally sponsored private banking cartel licensed to loan money into existence — writes a check to purchase a ‘debt instrument’ such as a U.S. treasury bond or a mortgage-backed security, it is also literally creating money from nothing.
In other words: Money as wealth is an illusion!