The Creature from Jekyll Island (3)

Benefit to the banking side of this partnership

But what about the banking side? This is where it really gets interesting. Let's go back to that billion dollar check. For the sake of our analysis, let's just follow $100 out of that billion in a check that for some reason they write to the fellow that delivers the mail to our door. The postal worker gets a check for $100. He deposits it now into his personal checking account. A $100 deposit has now been made in the local bank and the banker sees that and runs over to the loan window and opens it up and says "attention, everybody, we have money to loan, someone just deposited $100." Everyone is overjoyed and they line up for these loans. The banker says we can loan up to $900 based on that $100 deposit. How can that be done? The FRS requires that the banks hold no less that 10% of their deposits in reserve.

Only $100 deposit but $900 in loans and that deposit is still there. Where did the $900 come from and the answer is the same -- there was no money. This springs into existence precisely at the point at which the loan is made. Notice the difference, an important distinction is when the money is created out of nothing for the government it is spent by the government. On the banking side, however, when it's created out of nothing it's not spent by banks it is loaned by banks to you and to me and we spend it. Notice that when they loan it to us we have to pay them interest on it. Think about this for a minute. This money was created out of nothing and yet they collect interest on nothing. I wish I had a magic checkbook like that where I could just write checks all day long and didn't have to have any money any place just checks, loan it to you folks and you're silly enough to pay me interest on it. That's how it works.