How banks create money part 1 of 2

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Learn how money is created and destroyed through the money creation and destruction cycle. The Minnesota Transportation Act. house version https Senate version

24 Comments For This Post

  1. TheMEK3 Says:

    Seems like a never ending cycle to me

  2. hamobu Says:


    I was talking about fractional reserve banking. Banks need say $100 deposit to loan out $80 and keep $20 in banks own bank account with federal reserve. $80 loan becomes another deposit and then 64 is loaned out while $16 is left with Fed, and so on. Eventually $100 becomes $500 in loans and this is the multiplier effect.

    And how could regular people invest in other people’s car loans and home mortgages without banks as an intermediary?

  3. BRINK00 Says:

    True Inflation is not price inflation – it’s Monetary Inflation = inflation of the money supply. The “inflation” of wages and prices (after all, wages are just a price of labor) of goods, are in fact a direct result of this Monetary (re true) Inflation. The true fight would be about the level of money supply the economy needs to sustain and grow with the growth of the country (ie population). Of course this would lead to a non-market decision – leading us to our current problem.

  4. BRINK00 Says:

    Please do further research on FRB – Fraction Reserve Banking – this will show you that the banks don’t need $100 in deposit to loan $100. The very definition of FRB does mean that the banks “make up money”. Your theory that if there were no banks then their would be no business is a bit misplaced. I’d agree that there would be no business if there was no savings. The only true way to grow an economy is through investment of savings (deferred consumption) into higher return assets.

  5. BRINK00 Says:

    Great video – this is why there is no such thing as too big to fail – the banks/lenders must fail and wipe out their pseudo profits. There is no such thing as a free lunch. The only way to re-balance the system is to have the banks go into bankruptcy – write off the “bad” debt and clear the system of this created money (not wealth). What we have right now is the banks fighting this action – and the government being the lackey in trying to delay this default – you only delay – not prevent.

  6. Jaybar262 Says:

    This setup assumes that borrower #2 does nothing with his $90 dollars that’s left over after allowing for borrower #1 to break even on the loan. What if borrower #2 takes their $90 and then makes a product that they sell to someone who isn’t buying on borrowed money and makes a 50% profit. Thus they pay back their loan and pocket $25, cycle ends. Of course it could go the other way and they make no money theoretically allowing the cycle to continue if people are purchasing with debt.

  7. TheByronDaleChannel Says:

    @gogolando If you would like to discuss this more in depth please visit our website at wealthmoney dot o r g and visit our forums. We are in the process of upgrading the website at the moment as well.

  8. TheByronDaleChannel Says:

    @gogolando The banks simply take all the pledge collateral (real wealth) when they only loan a promise to pay (banks do not loan any tangable assett).

    The government creates no money at all and the money that is created by the banking system when the government goes into debt gets extinguished the moment someone uses it to make a principle payment on that debt.

    You have to remember that the government has to borrow before it can spend (when talking about T-bonds).

  9. gogolando Says:

    Ok, but if the borrower doesn’t pay and the bank finds that its collateral falls short of the principle owed what happens? Nothing? I dont think so. And what about the goverment? Doesn’t it creat money that stays in the sytem when it sells T-bonds. Government, sells them to banks, spend the money and then the Fed buys the T-bonds from the banks by printing.

  10. hamobu Says:

    @usurynation Banks don’t make money (other than the central bank of course). Interest is the price of money, so banks ‘buy’ money from savers and they ‘sell’ it to lenders for a bit more. The difference in interest rates covers banks costs, defaulted loans and profit. Banks get profit for basically taking our money and giving it to someone who has a need for it. This enables businesses to get started and economy to grow.

  11. hamobu Says:

    This is nonsense. Banks don’t make up money and loan it to people. Instead they need 100 in savings deposits to be able to lend 100 dollars. Banks charge more to loans then they give to savings, but they have default risk from people who get loans. If there were no banks, than people would put money under the mattress and nobody would be able to open a business. Banks have a so called a multiplier effect, but that comes from banks making money circulate faster.

  12. prayfortruejustice Says:

    Owners v. Workers

    P+I > P = slavery

    Time for interest free sovereign money — this is Freedom’s Vision.

    Join the swarm today. The American Party PAC. w w w SwarmUSA com

  13. zefvor Says:

    price level = production cost + profit

    inflation = either wages or profits go up, and profits somewhat have limited leeway thanks to competition

  14. zefvor Says:

    inflation most probably comes just from rising wages, made possible by rising debt levels

    conversely, deflation occurs only if wages fall, otherwise its just growing “output gap” and unemployment

  15. usurynation Says:

    Further, inflation is not even the main negative of this system. Deflation, which is inevitable and comes periodically in the form of depression is the real issue.

  16. usurynation Says:

    I recommend looking into Mike Montagne’s or Edward Kellogg’s work.

  17. usurynation Says:

    Further, there is no logical reason for C to pay a higher price for the “product”. If anything, since all the A’s out there are needing to sell the thing ( to raise the interest money) a falling in price should be seen – as the sellers compete. What happens is the loanee gets industrious and expands his business to cover the interest = economic growth, not a good thing, unless you’re under a debt money system, as we unfortunately are, and lack of expansion = collapse.

  18. usurynation Says:

    I don’t agree with his conclusion on inflation. To gain the money to pay back the interest, what happens is that the economy is forced to expand – he does mention that when he says “sell more products”. I would say that inflation comes from the extra loans taken above that needed to cover the interest (new loans should equal econ. growth). Yet too much money is loaned (in excess of econ. growth)-shows up as consumer/govt debt and I beleive that is where inflation comes from.

  19. 22santini Says:

    If only the complexity of economics could truly be explained in the simplified terms of some guys borrowing $100 from a “greedy” banker!!!!!!

    This is theoretical “hogwash”!

  20. Sunamc Says:

    How familiar is Byron with Post Keynesian school? This video appears to be a reproduction of endogenous theory of money creation, and the circuitist models of the PK school.

  21. TheByronDaleChannel Says:

    Watch Byron’s speech from the Kansas City CNC and that may help to answer that question.


  22. buzzz121 Says:

    Now I get it. The Bankers are Evil!

    With this type of Ponzi Scheme in place how is it the banks are in trouble?

  23. Lexi8888 Says:

    Thank you

  24. johnnytm Says:

    good explaination

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