2.1 Banks Don’t Create Money

Revised November 2, 2013

Many people believe money is created by banks!  This is false.  Banks don’t create money.  The banking industry would like you to believe this for their benefit.  If they can get you to believe this false idea, they can steal your money value, energy, wealth, capital and power.  Money has two parts; the symbol and what the symbol represents.  The money symbol represents value, energy, wealth, capital and power.  This is the value, energy, wealth, capital and power you create working and laboring when producing commodities, trades, goods and services. 

Banks currently expand the money supply.   Governments  create the money symbol.  That is all they create.  The Producers create what the symbol represents, the value, energy, wealth, capital and power.  Producers create all of what the money symbol represents.  Again, banks don’t create money.  Money has two parts.  Governments create the first part, the symbol.  Without the Producers the symbol would have no value, energy or power.  It wouldn’t represent wealth or capital because there would be none.  

The Producers create the value, energy, wealth, capital and power which is inherent in the money you possess.  In most cases the Super Producer and the Producer create more money value, energy, wealth, capital and power than they receive in pay.  In most cases they are underpaid for the commodities, trades, goods, and services they produce.  The rewarded non-producer and counter-producer receives more money value, energy, wealth, capital and power than they produce.

The first and primary service the Bank provides is to safeguard the money, value, energy, wealth, capital and power you produce.  This is their first and by far their most important product!  The Banking service came into existence when people used gold as a medium of exchange.  Gold is heavy, difficult to secure, handle and transport.  In order to handle these problems, Banking was set up to hold and secure the gold in vaults and other secure means.   These vaults and other secure means made it very difficult for anyone to steal the gold.  In exchange for securing the money the Bank would issue a paper note.  This paper note defined how much gold the note could be redeemed for.  It could be taken to the bank and exchanged back to the bank for the amount of gold that was stated on the note.

This paper note evolved over time to be used instead of gold during the process of purchasing commodities, trades, goods and services.  You could purchase food, horses, buggies, clothing; most anything with these paper notes.  Each paper note became a symbol for a specified amount of gold the Bank held in their vaults.  The gold held by the bank backed up or secured the note.  You could go to the Bank and exchange paper notes and in return receive a specified amount of  gold.  In exchange for securing the gold, the Bank would charge a small fee.  Here the banks were creating money value by providing a very much in-demand service.

From there the banks evolved into loaning out part of the money they held in their vaults.  They loaned out this money in exchange for interest.  Here again, they were creating money value in exchange for providing a service.  The service was providing loans to people who needed more money.  These people paid interest in exchange for the use of the money they were borrowing.  This is fine as long as the bank doesn’t loan out too much of the money it holds in its vaults.  As long as there is enough money held in the bank vaults, to cover the day to day transactions of the banks customers and depositors, the economic system flourishes.  When banks loan out too much of the money held in their vaults and the depositors’ sense there is a shortage of money in the bank, they will panic and make a run on the bank.  This loaning out too much money will cause an economic problem, a perceived “shortage of money” problem.

When I talk about money value, I am talking about the value you produce in the creation of commodities, trades, goods and services.  Value is what you create when you create commodities, trades, goods and services.  You could also look at it as energy because you really generate energy and put it into the commodities, trades, goods and services you create on a daily basis.  Money can be in the form of gold, paper, shells, silver, and cloth anything the people agree to be the symbol to represent the value, energy, wealth, capital and power they create.  It must be set up to be at a constant supply and be in absolute amounts measured in units.  Gold worked very well because it was impossible to create more of it.  It was close to a constant supply.  There was near a constant supply of gold.   It is divided into units.  The units in the United States are in ounces.   Gold was and is difficult to find new sources for mining.  Gold was fairly constant in terms of a money supply, and was measured in units of weight.

Every now and then there would be a major new gold discovery.  This new discovery of gold would cause problems, such as inflation, in the economic system.  A new supply of gold would be introduced into the economic system.  This would cause money value, energy, wealth, capital and power inherent in the existing money units of gold to be transferred to the newly mined gold as it became money units.  The peoples’ gold value would decrease, decreasing the purchasing power of each gold money unit.  This is the same principle that happens today when the paper money supply is expanded, the value of each existing money unit decreases as the value is transferred to the newly printed money.   This gives the apparency of commodities, trades, goods and services getting more expensive when in fact the money unit is losing value and purchasing less.  This is the source of inflation.

Yes, you could argue gold, when not used as a medium of exchange, does have value.  However if you removed it from being the medium of exchange for commodities, trades, goods and services, it could have a far different value.  What could you really use gold for if it was not the agreed upon medium of exchange?  You can’t eat it; it can’t shelter you and can’t transport you. It wouldn’t have much more use than for jewelry, or industrial uses.  Take platinum for example; it has the value it has, for its industrial purposes.  If it were substituted for gold as the medium of exchange its value would change and people would lose interest in gold.

Gold holds a very interesting position in the minds of people.  Today people still view gold as the master medium of exchange.  They place attention on gold as the savior medium of exchange.  They look towards gold as the default medium of exchange when the economic system recedes toward depressions.  Today, even with our paper monetary system, gold is continued to be viewed as the basic medium of exchange.  Gold is valued as a stable medium of exchange because it gives a constant money supply.  More gold can’t be printed or created in order to expand the money supply.  I believe a paper money supply system or any other form of money supply could be set up to function as a constant money supply system.  A constant money supply system gives an economic system and its Producers stability and confidence.  See The Constant Money Supply at http://youcreatemoney.com.

Today when the Banking industry causes a shortage of money by loaning out too much of what it has in its vaults, it expands the money supply.   This is fraud.  By expanding the money supply the bank is stealing money value or energy from the money already in circulation and this value or energy flows to the newly expanded money.   The same can happen with gold when more new gold is introduced into the society.  Value is transferred from the existing gold units to the new gold units.  This happened in Spain. After Spain brought the gold from the New World and introduced it into Spain’s society the society suffered an economic collapse.

BANKS DO NOT CREATE MONEY!  They expand the money supply.  They do not create the value the symbol represents.  The value is created everyday by the Producers of commodities, trades, goods and services which must be marketed on the Open Market open to all on equal terms.  The banks do not create the energy, wealth, capital and power the money symbol represents either.  Banks expand the money supply.  The Government prints and coins the symbols.  The banks would like you to believe they are creating money including the moneys’ value, energy, wealth, capital and power out of thin air.  With you believing they are creating the money symbol along with the value, energy, wealth, capital and power the symbol represents; they can literally steal the value, energy, wealth, capital and power right out of the money you have in your possession. 

When Banks expand the supply of money,  money is not created!  They increase the supply of money symbols.  They use these new money symbols to steal value, energy, wealth, capital and power from the owners of the existing money that is in circulation.  Only the money symbol is created.  When Banks increase the supply of money symbols; money value, energy, wealth, capital and power is transferred from the money currently in circulation to the newly printed money symbols.

It is very important to know, Banks do not create money!  They may expand the money supply, but that reduces the value, energy, wealth, capital and power in each money unit you possess.  This transfers money value, energy, wealth, capital and power from the money currently in circulation into the new money units, reducing the value of all money in circulation.  This means, whenever the money supply is expanded, people lose money value, energy, wealth, capital and power.  It is transferred to the bank expanding the money supply.  You could also say money is stolen by the bank.  Or, you could say banks steal money whenever they expand the money supply.

Banks have as their prime service; to secure the money, value, energy, wealth, capital and power you create during your production.  This is their primary duty.   Their secondary duty is to provide money in loans.   Their secondary duty is to provide loans from the money on deposit in their vaults.  Banks must provide these loans without loaning out more money than the bank’s depositors need in their everyday financial operations.  Money is energy and it flows.  It is the duty of the Bank to maintain an optimum level of money (energy) velocity in the society.  This means the Bank must not loan out its depositors deposits to the point where the flow of money (energy) in the society slows or is stopped.  There must be enough money on deposit in the banks vaults for the bank’s customers to function on a daily basis.  When banks perform their primary and secondary duties well the whole society they serve will prosper.  This type of bank is a very valuable asset for the Producers.

Banks expand the money supply in the mistaken belief they are creating more money.  The act of expanding the money supply sucks the energy out of the society.  Expanding the money supply reduces the value in all money units.  Expanding the money supply transfers wealth, capital and power from the individuals in the society into the hands of the bankers who expanded the money supply.  They are taking money, value, energy, wealth, capital and power without an exchange in commodities, trades, goods and services for it.  They will suck the energy, wealth, capital and power out of the society until a society will almost die.  They can be parasitic on a society.  Bankers allowed to expand the money supply are very destructive to themselves and their society!

Value which gives money its power can only and only be created through the production of commodities, trades, goods and services.  The commodities, trades, goods, and services must be exchanged for money on the Open Market, open to all on equal terms.  See The Open Market Construct at http://youcreatemoney.com.

The money supply must be held constant.  When the money supply is expanded, money value is stolen from those who currently possess the money and given to those who receive the newly printed money units.

Only Producers of commodities, trades, goods and services can create money and the Producers must be paid all the money in exchange for the value they create in their production.  Producers must not take more money than they have created in the production of commodities, trades, goods and services or they will also be sucking energy out of the society.

Banking can and should be a tremendous asset to a society.  They can help the Producers create an explosive prosperity!  They can help create an explosive prosperity by securing the money value and by maintaining the optimum money velocity in a society.  They can maintain the optimum money velocity by not loaning out too much or too little money held in their vaults.  They can secure the money value by maintaining a constant money supply.

Producer Rewarded Open Market Economics
The Science of Economics
By Raymond P. Obrigewitsch
April 24, 2011

 

 

 

 

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Tuesday, May 3rd, 2011 Producer Rewarded Economics

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