Healthy Money Healthy Planet - library.uniteddiversity.coop

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Second comes the bit where bankers, central bankers and economists tell you
something rather short of the truth. Banks almost invariably explain they are ‘lending’
out their deposits, claiming that the money already exists. In fact, what really happens
is that this deposit is created at the very moment the loan is created. As we have seen,
this dates back to the moment when goldsmiths first realised that they could create
more receipts for gold than they had actual gold in their vaults to back those receipts.
In the 16th century this practice, although widespread, was illegal. It was only with the
establishment of the Bank of England in 1694 that the idea was given legal status and
money creation was monopolised by private banks. And, while money is no longer
backed with commodities such as gold, the practice is still as deceptive as it was in
those days.
Consequences of the System
There are four primary consequences that follow from allowing banks to create money
as interest­bearing debt. These are each dealt with below.
Growing Debt Spiral
Perhaps the most fundamental problem associated with our current system of money
creation is that we, as a group, will fall further and further into debt. This doesn’t mean
that everyone will descend into debt. Some will and some won’t, but as an aggregate,
the debt increases. Banks only create the principal, not the interest, which we must also
repay to them. Hence, the debt spiral grows as money is created, through debt, to pay
this interest.
Let’s look at an example of this, using small sums of money and let’s also include
the common practice of saving. Suppose a bank lends out $100 to each of ten families at
10 per cent interest. To repay the loan, the families are required to grow crops and
produce goods to sell. At the end of the year, each family is expected to pay back their