Education In Money Creation

Education in money creation starts with a shift in thinking. In modern banking, banks have the ability to create money by extending loans, through a process called fractional reserve banking.

None of this is financial advice – do your own research!

When a bank issues a loan, it creates a new deposit for the borrower. This action increases the money supply in the economy.

So banks don’t lend out pre-existing money in the same way that an individual might lend money to a friend.

Instead, they create new money by extending credit. While this process is legal and regulated, it doesn’t necessarily imply any wrongdoing on the part of the bank.

Even if the bank creates “loan” money on a ledger sheet, they still have a legal claim to that money. They expect the money to be repaid according to the terms of the loan agreement. Regardless of whether the “loan monies” didn’t exist before the “loan” was made.

Banks provide “loan agreement” documents that outline the terms of the loan, including the amount to be repaid and the interest rate.

These agreements don’t usually cover education in money creation. Nor do they detail the mechanics of fractional reserve banking, as it’s not considered relevant for most borrowers.

Legally, the fact that the bank creates the money doesn’t negate the obligation to repay the loan. The borrower still receives value in the form of funds they can use, and the bank expects repayment in accordance with the loan agreement.

What’s The Definition of “Loan”?

A loan is defined as a sum of money borrowed from a lender, with the expectation that it will be repaid at a later date, often with interest.

In traditional lending situations, the lender provides pre-existing funds to the borrower.

However, in modern banking, the concept of a loan is more complex. When a bank extends credit to a borrower, it creates a new deposit in the borrower’s account, effectively “creating” money that didn’t exist before.

In this sense, it’s not entirely accurate to say that the bank “loans” the borrower pre-existing money. Instead, the bank creates new money by extending credit.

So, no one “loans” the borrower pre-existing money. Instead, the bank creates new money through the act of lending. Now the borrower is expected to repay that money with interest, according to the terms of the loan agreement.

While the money doesn’t exist before the borrower comes along, it’s not accurate to say that one party “loans” money to the other.

To be more precise, the bank extends credit to the borrower, which creates new money in the form of a deposit in the borrower’s account.

The bank doesn’t “loan” the borrower any money that pre-exists. Instead, the act of lending itself, creates new money.

So, rather than thinking of it as one party loaning money to another, it’s more accurate to say that the bank creates new money and extends credit to the borrower…

With the expectation the borrower repays that money, with interest.

Who Lends Whom The Money?

Here the bank is still considered the lender, as it’s the one that extends credit to the borrower and creates the new money.

The borrower is still the borrower, as they receive newly created money from the bank and are expected to repay it with interest.

Yet the borrower receives no education in money creation.

It’s true that the bank can’t create the money without the borrower’s request for a loan.

But that doesn’t mean that the borrower “lends” money to the bank.

Instead, the act of borrowing triggers the creation of new money, which is then extended to the borrower by the bank.

While the bank doesn’t physically lend pre-existing money, they do create new money through adjusting figures on a ledger account..

The fact that the bank manager doesn’t explain:

the source of the money or
the implications of pledging a mortgage over a property that isn’t yet owned by the borrower

When a bank asks you to pledge securities over a property that you don’t yet own, it’s considered legal and is not fraud.

Riskless Lending Money Creation

Take the situation where a farmer buys seed to plant and grow a crop. The seeds cost money to buy, and the farmer invests time nurturing the crop, while having the risk of losing the whole crop from day one.

When a “borrower” asks the bank for a loan, the bank creates money… So on the first day of the loan account being opened, the bank has no risk of loss (unlike the farmer) The only risk to the bank is a risk of losing any potential gain!

So when a bank creates money through lending, they don’t have the same risk of loss as a farmer planting seeds.

Unlike the farmer, who invests money in seeds and risks losing their entire crop, the bank’s risk is primarily limited to the potential loss of future profits if the borrower defaults on the loan.

In other words, the bank doesn’t have to invest any pre-existing money in order to create new money through lending. Instead, they simply adjust ledger accounts and collect interest payments from the borrower.

While banks do face some risks, such as the possibility that borrowers may default on their loans, these risks are different from those faced by farmers or other types of businesses that require upfront investment.

This difference in risk is one reason why banks are often criticized for engaging in “riskless” lending practices, particularly when they create money through fractional reserve banking.

Money Creation in Contracts?

In a typical loan agreement, the borrower risks losing their collateral (such as a house) if they default on the loan, while the bank risks losing only the potential gain from interest payments.

From this perspective, you could argue that there is unequal consideration in the contract… As the contract creates the money. And the bank’s potential losses are not equivalent to the borrower’s potential losses.

However, the legal definition of consideration is broader than just financial risk or potential loss.

In contract law, consideration is generally defined as something of value given or promised in exchange for something else of value.

In a loan agreement, the bank’s promise to lend money to the borrower can be considered as valuable consideration, even if the bank’s risk of loss is not equivalent to the borrower’s risk of loss.

At the time of contract, the impression given by the bank manager, is that the bank lends money – from customers’ deposit accounts.

Because of this lack of education in money creation, the impression is that the bank’s taking a risk in lending money to the borrower.

To add to that impression, was the fact that the bank wants a full report of borrowers assets and ability to re-pay the “loan.”

Thus there’s no “full disclosure” at the time of contract.

Plus, the bank insists on the borrower taking out “mortgage insurance.” So even if the borrower does default, the bank is insured. In what way is that an equitable level-playing-field-type of contract?

And in the event of default by the borrower, the bank claims on the mortgage insurance… and has no grounds to foreclose!

Deception At The Bank?

There are valid concerns about the potential for deception and lack of full disclosure in the lending process. Rather than education in money creation, the bank creates a false impression about the source of the funds being lent and the risks involved.

Misrepresenting the source of funds: By implying that the money being lent came from customers’ deposit accounts, the bank may have given the borrower the impression that the bank was taking on significant risk. But the bank creates new money through lending and doesn’t use pre-existing funds from deposit accounts.

Inflating the perceived risk to the bank: The bank manager’s focus on the borrower’s assets and ability to repay the loan contributes to the impression that the bank is taking a substantial risk by lending the money. In reality, the bank’s risk is primarily limited to the potential loss of future profits, rather than the loss of pre-existing funds.

Concealing the bank’s insurance coverage: The fact that the bank insists on the borrower taking out mortgage insurance without disclosing that this insurance protects the bank in the event of a default could be seen as another form of deception. This education in money creation may be relevant to the borrower’s decision-making process and should be disclosed upfront.

It’s important for borrowers to be well-informed about their rights and the lending process.

The bank’s reluctance to provide fully audited and verified accounts can be seen as an attempt to hide the true nature of their lending practices. This may include the fact that they create new money through lending rather than using pre-existing funds.

Banking Secrets

By keeping this information hidden, banks can:

maintain the illusion that they are taking on significant risk when they lend money, and
gain more leverage in negotiations with borrowers.
charge higher interest rates and
impose more stringent loan terms

As borrowers may be under the impression that the bank is putting its own money on the line.

The lack of transparency makes it difficult for regulators and policymakers to hold banks accountable for their actions.

The bank’s refusal to provide fully audited and verified accounts raises serious questions. You have to wonder about their lending practices and the potential impact on borrowers and the broader financial system.

Many people find it hard to believe or accept that banks create money out of thin air…

This concept goes against the common belief that money is a scarce resource that must be earned through hard work.

As a result, people may be more likely to accept the narrative presented by banks…

Even if it leads to unfavourable outcomes like longer working hours, financial stress, and relationship difficulties…

This lack of education in money creation can create a vicious cycle. Through ignorance, people feel trapped in a system that prioritizes profit over their well-being.

Part of the challenge is that the banking system is complex and can be difficult to understand. Could it be a deliberate ploy? To make it easier for banks to perpetuate myths and half-truths about how money works?

Spreading awareness and educating people about the true nature of money creation is a start. Then we can begin to challenge these misconceptions and empower individuals to make more informed decisions about their financial future.

It’s tragic how may lives are destroyed by banksters.

The stress and anxiety associated with financial insecurity can be overwhelming.

And the fact that it’s often perpetuated by a system that people feel powerless to change can be incredibly demoralizing.

It’s disheartening that many people are so deeply ingrained in this system, they can’t even imagine an alternative.

They accept long hours and high levels of debt as the norm, even if it’s causing them significant harm.

Stop Making Payments?

What would happen if everyone stopped making their monthly payments?

The short answer is that it would cause a major disruption to the financial system.

If people stopped making payments on their mortgages, loans, and other debts:

Banks would be left with large amounts of non-performing loans on their books,
And could lead to liquidity problems and potentially even bank failures.

This could trigger a broader financial crisis… Banks would be unable to lend to businesses and individuals. This could cause economic activity to slow down, or even grind to a halt.

Of course, this is a hypothetical scenario.

It’s unlikely that everyone would stop making payments all at once.

However, it highlights the interconnectedness of the financial system and the potential risks associated with a large-scale default on debt.

You could say that the banks’ dependence on borrowers making timely payments is a potential weakness or vulnerability.

This is why banks go to great lengths to assess borrowers’ creditworthiness. And they require collateral for many types of loans. They also use various risk management techniques to minimize the risk of default.

However, even with these precautions, there are still risks associated with lending money.

Bailout For Banks

Unexpected events like economic downturns or natural disasters, or planned-emics, can lead to widespread payment defaults.

This vulnerability is not limited to banks, though.

Many financial institutions rely on the timely payment of premiums or investment returns to maintain their solvency.

The interconnectedness of the financial system means the failure of one institution can effect the entire system.

Which is why regulators and policymakers often take steps to maintain the stability of the financial sector as a whole.

And pass legislation to “bail-out” the banks!

Crazy! Seeing how the banks can create money out of thin air!