how bank loans work, page-26

GC

"I thought the banking system was and still is inherently linked to gold although since Nixon the link is obscured. Gold leasing is IMO really important to the banking sector."

Banking systems can run perfectly well without gold. Most of the transactions between the central bank and the clearing banks that regulate liquidity and determine interest rates are bond repo. The only business in gold done by Australian banks is in derivatives for customers. If the customers didn't want it they wouldn't bother.

"The way I see it the system is broke without gold. The point is the retail sector doesn't realise it because we are not officially on a gold standard."

For a system that is "broke", it is functioning surprisingly well. "Broke" assumes that the system can't meet it's obligations/debts.

"Is this why Peter Costello/ Brown sold all that gold?"

Costello and Brown sold their gold because they they didn't need the gold to run their financial systems and they thought they could get a better return investing in bonds or repaying government debt.

"So no banks do not print from thin air unless it is quantitative easing."

Only central banks can control money supply, if you ignore forgery.

"This is why gold goes up when QE is announced. No need to sell leased gold as the cash is coming from thin air."

The reason the price of gold goes up on talk of QE is that the market thinks that QE is inflationary. Interestingly there is very little empirical evidence to support this idea.