How money is created in Australia : Explained by several commentators, dispelling myths and pointing out problems with the system.
In our related page Money Creation in Australia, a detailed explanation is given of how privately owned banks create 95% of Australia's money as credit, virtually out of thin air, and then get people to pay them interest on it. This comes as quite a shock to those who previously believed banks merely lent out money deposited with them for safekeeping by their customers, so here we present more evidence in different words.
In an article called "Manufacturing Money", Mark Mansfield B.Ec. wrote:
"Information about money is not a state secret. The following statistics are readily available from the Reserve Bank of Australia's monthly Bulletin.
"When the Federal Coalition was elected in March 1996, Australia's money supply was $345,479m. By March 1998, it had grown by $55,968m to $401,447m or $22,302 per Australian. In other words, there is now $3,110 more money per Australian in the economy than there was two years ago. I guess Treasurer Costello has been a pretty good treasurer if we are all now $3100 each richer, than we were under Keating? But if, as Treasurer Costello says it would be lunacy for the government to print money, where did all this new money come from?
"Well, some of the money was printed. In March 1996 there was $18,691m in notes and coins in circulation. By March 1998 it had grown by $2,140m or $120 per Australian to $20831m. Notes and coin in circulation though represent only 5.2% of the total money supply or $1,157 per Australian.
"The vast bulk of the money supply is held as deposits in accounts with banks and other financial institutions. Ninety-six per cent of the growth in the money supply in the two years from March 1996 occurred in financial institution deposits as a result of the financial institutions themselves growing the money supply.
"Banks grow the money supply every time they claim to lend money. I say claim to lend money, because banks do not really lend money. When money is borrowed from a bank, the bank actually creates new money or credit out of nothing. It credits a loan account it has set up on its books with a deposit which can be drawn upon by the borrower. As banks must pay out deposits on demand this is a liability for the bank which is entered in the debit side of its ledger. On the credit side of the ledger, because the bank charges interest on this created money, this is an asset for the bank earning it income.
"Everyone sub-consciously knows banks do not lend money. When you draw on your savings account, the bank doesn't tell you you can't do this because it has lent the money to somebody else. You would be pretty irate if this happened because it would amount to theft."
In a Nemesis Magazine article entitled The People Vs The Banks, George Dimitriou writes:
"out of a work force of some 10 million, only 90,000 people, or a minute fraction of the populace, become aware of what the 'mainstream media' can not or refuses to publish. The rest of the populace essentially end up ignorant, or to use the more common term - brainwashed. In the simplest of terms, all the above can be stated thus: "'The populace is too ignorant and stupid to know any better, and advantage is taken of this by those in power - who thus do as they damn well please.'
"This resounding fact needs to be continuously kept in mind, for throughout this article the reader will no doubt be asking him or herself as to how the state of affairs presented could possibly be the case. In this regard it is worth keeping in mind that the majority rule, and in this case we have some 18 million, 910 thousand ignorant people in Australia that constitute that majority. To those who will spend a moment in pondering over the significance of these figures, they will realise with a bang why it is that the great deception will go on....and on....and on.
"What Is The Great Deception?
"The great deception that is currently strangling the Western world, and thus every man woman and child, is the over abundance of credit, or much more specifically, the creation of money 'out of thin air'. It remains as an insidious truth that the vast majority of people remain blissfully unaware of the fact that when banks lend money, they in fact create most of it with the scribble of a pen at no cost to themselves. Adding to this already heinous fraud, they then add an inordinate interest charge for the use of that money - money which for all intents and purposes does not physically exist. Sir Josiah Stamp, director of the Bank of England during the years 1928-1941, stated thus in regard to 'banking':
"'The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in iniquity and born in sin. Bankers own the Earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough money to buy it back again...Take this great power away from them and all great fortunes like mine will disappear, and they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit'."
The Australian Institute of Economic Democracy once stated:
Banks do not lend money deposited with them. Every bank loan or overdraft is a creation of entirely new money (Credit) and is a clear addition to the amount of money in the community. Practically all the money in the community begins its life as an interest-bearing debt to the banks. Garry Bell of the Institute of Education, University of Melbourne put it this way:
"Banks now acquired a unique role in the creation of money. When one individual Tony, borrowed from another individual George, there was no change in the money supply. Tony had more, George had less. But if Tony successfully approached George's bank for a loan, Tony had more purchasing power, George had no less and the total money supply rose. From an initial deposit base of cash, banks were able to expand the money supply many times over through lending provided depositors were confident about the security of their deposits."
John Hermann wrote in "Reflections on the Mystery of Money":
"It is not difficult to find evidence of the confusion and obfuscation surrounding the money issue. A former leader of the National Party in Australia has been quoted as informing his constituents that "banks do not create money". On the other hand many economic reformers have taken the trouble to assemble long lists of quotations from distinguished personalities, including people at the top of the banking profession, in support of the proposition that banks do create money. Recent college economics textbooks, particularly within the USA, provide descriptions of money creation by the banking system via the "money multiplier" mechanism, and even of "fractional reserve deposit expansion". However, one can also find other economics textbooks which avoid the entire issue of the creation of money like the plague. The confusion and the contradictions appear at almost every level. An excellent little book by Australian reformer Ed Burgi (Money Creation: The Great Confidence Trick) has reproduced a recent letter from the secretary of the Reserve Bank of Australia, who absolutely denies that banks create money. Ed also possesses an official letter originating from the economics department of the Reserve Bank of New Zealand which states unequivocally that the commercial banks create around 97 per cent of M3 !"
Frederick Soddy, M.A., F.R.S., Nobel Prize Winner in 1921 wrote:
"The most sinister and anti-social feature about bank-deposit money is that it has no existence. The banks owe the public for a total amount of money which does not exist. In buying and selling, implemented by cheque transactions, there is a mere change in the party to the whom the money is owed by the banks. As the one depositor's account is debited, the other is credited and the banks can go on owing for it all the time.
"The whole profit of the issuance of money has provided the capital of the great banking business as it exists today. Starting with nothing whatever of their own, they have got the whole world into their debt irredeemably, by a trick.
"This money comes into existence every time the banks 'lend' and disappears every time the debt is repaid to them. So that if industry tries to repay, the money of the nation disappears."
New Internationalist Magazine says, in its article The Truth About Banks:
"Most of the new money in the world is not created by governments, it is made by banks. In Britain, for example, only 3% of new money is produced by the government (in the form of new coins and notes); the other 97% is created by banks, when they make various kinds of loans. Banks need people to be in debt in order to make their huge profits."
Legendary Australian, R.M. Williams, when asked what message he would like to deliver to modern Australia said on his 90th birthday:
"Oh, alright. Rewrite the Banking Act to give the federal Treasurer power to control the nation's money; reform the monetary system; limit the International Monetary Fund's powers; resurrect the rural credits department; make foreign companies pay tax in Australia; allow gold producers to sell overseas and give people back control over their own money."
