Do Banks Actually Create Money?
No, they create credit in a fractional reserve system. That is what has created this mess. Most of the growth we have experienced the last two decade has not been based on real goods and services provided. It had been based on expanding credit and inflation cause by loose fiscal policy of the Federal Reserve and government mandating that banks make loans available to unqualified people. The gold standard kept us from over inflating our currency and limited spending by the Congress. If we were to go back to the gold standard, the government would have to value gold at around $5,000 an ounce instead of artificially holding the value down. We are now in a money bubble, when that pops, the dollar will be worthless. The banks do not “create” money, they use a fractional reserve system. They use a ratio of 20% for deposits to lending. They may lend out $80 for every $100 on deposit. So they count on depositers not wanting all their money at one time. If the bank runs low on “reserves” they b
