How do banks create money out of thin air?
THEY CAN’T DO THAT, CAN THEY? Yes they can, Dorothy, and they do. They create money from your promise to repay a loan …that’s how. Very simply put, when you go to the bank and get a loan for a house, car or credit card and you promise to repay the loan with interest by signing a contract, you create debt. The bank then takes that “promise to pay” to the Central Bank and they get at least 9 times that amount on your piece of paper. So the bank creates money from a piece of paper that you sign. In other words, banks create as much money as we can borrow. Most people do not know where money comes from. How does a dollar appear? Let’s say that there is $200.00 in the total economy. Who makes the decision to change that number to $300.00? Most people would answer “the government” or “the central bank”. These are good guesses, but wrong. The correct answer is: you do. When you borrow a hundred dollars, those hundred dollars appear magically in the economy. They did not exist before you took
