That should be noted that central banks are not express banks but private companies. The countries have given the right of issuing money to private bankers. In turn, these private central banks lend the states with interest and for that reason, have financial and of course, political power. The paper money circulated in a country is really open public debt i. e. countries owe money to the private central bankers and the payment of the debt is ensured by providing bonds.
The state or borrower issues bonds, in other words, it accepts that it comes with an equal amount of debt to the main bank which based on this acceptance creates inboxdollars money from zero and lends it with interest. This specific money is lent through an accounting entry however , interest rate does not exist as money in any form, it is merely on the loan contract obligations. This is the reason why global personal debt is bigger than real or accounting debt. Consequently, people become slaves since they have to work to get real money to pay off debt either public or personal debts. Very few ones control to pay off the money but the rest get bankrupted and lose everything.
Nowadays, Fed creates USD and ECB Euro which both is fiat money I. e money with no intrinsic value that has been established as real money by government regulation and we, therefore, have to simply accept it as real money. Central banks circulate coins and papers profit most countries that they are just 5%-15% of the money provide, the rest is digital money, an accounting data entry.
Therefore, if all depositors decide to take their money from the banks at the same time, banks cannot give it to them and bankrun is created. In this point, it ought to be described that for every single USD, Pound etc deposited in a bank, the banking system creates and lends five. Banks create money each time they give loan products and the money they create is money that appears on the pc screen, not real money deposited in the bank’s treasury that lends it. Nevertheless , the bank lends virtual money but gets real money plus interest from the borrower.
The borrower has to work to get the real money, quite simply, banks lend virtual money and get real money in return. Since the loaned money is more than the real one, the banks should create new profit the form of loans and credits. When they raise the quantity of money there is progress (however, even in this case with the specific bank and monetary system debt is also increased) but when they want to create a crisis, they stop giving loans and credited to the lack of money a lot of individuals bankrupt and depression begins.
This is a “clever trick” created by the bankers who have discovered that they can provide more money than one they have since depositors will not take their money, altogether and at the same time, from the banks. This really is called fragmentary; sectional reserve banking. The description given by Quickonomics for fractional reserve banking is the following: “Fractional reserve banking is a banking system in which financial institutions only hold a small fraction of the money buyers deposit as reserves. This enables them to use the rest of it to make loans and thus essentially create new money. This gives commercial banks the power to directly affect money supply. Within fact, even though key banks are in charge of controlling money supply, almost all of the money in modern economies is created by commercial banks through fractional reserve banking”.Read More