The Shocking Truth About Money and Banks!

If I were to lend you 100 pounds, I would take the physical money out of my pocket, or the bank. I might even write you a cheque. The key point though, is that I would have had 100 pounds, then, when I lent it to you, I wouldn't have it any more. If I lend you a hammer, I would first have to have a hammer, then I could give it to you and you could use it.

So, it would make sense then that when a bank lends you some money that it takes money that it has in it's vaults (or at least on it's books as most money doesn't now actually exist in physical form, It is just numbers in a computer.) and hands it over to you. To compare it to the example of me lending you 100 pounds, the bank would first have had 100 pounds with which it could do as it liked. Then, it would give that money to you and so, wouldn't have it any more. The bank would be 'missing' that 100 pounds until you paid it back.

Obviously, that is the only way it could work and it is the way that it must work. WRONG! That is the only fair way that the system could work. If someone is going to lend you something, they must have that thing first. The Government creates money, the banks have large supplies of it because people deposit their money with them and the bank then loans it to you in order to charge interest. This is the way that most of us have assumed that it works and we have never been taught otherwise.

When a bank lends you money, it creates that money out of thin air! Yes, you read that correctly. Before you ask to borrow some money, that money doesn't exist. When the bank agrees to your loan, it simply conjures it into existence and gives it to you. The bank hasn't built, grown or created anything of value but it still gets to charge you interest on that money that it simply created.

This system is almost exactly the opposite of how you would think it should work. When the money is loaned out, it is created and when it is paid back, it ceases to exist as it is written off the bank's balance sheet. The bank gets to keep the interest on the money that it made up though! This poses a big problem for everyone because if all the money is created like this (which it is) then where does the money to pay the interest come from. Have you ever wondered why we have inflation?