Banks create money out of thin air, and then lend it at interest. Let's change this.

"At present, banks create money out of thin air, "

But they don't. They can't lend $100 until someone deposits $100. And when the person that borrows that $100 opens an account to deposit that $100, the lend it again. 9 times.

It's not "created" it's re-used. The same $100 can't be in two people's hands as cash at the same time, but that same $100 can be in 10 accounts at the same time, and even in those 10 accounts and $100 cash in one person's hand at the same time.

I'm not defending the system as we have today, but I prefer people who can talk about it accurately.

Taking in $100 bills in the front door and lending $100 bills out the back doesn't "make" money. Unless you hate the banking system. Then you claim that lending is equal to printing.

I like the example I just started. First time. I thought of it.

Bob, the loanshark has no regulations, so he keeps no reserve. He gets payments in the front door. Alice "deposits" $100 with Bob. So Bob now has $100. He loans it to Charlie. Charlie needed it to pay David. David "deposits" the money with Bob. Bob then loans that $100 to Erin. Erin pays Fred. Fred "deposits" the money with Bob. Bob lends it to George.

So now, Bob "owes" Alice, David, and Fred $100, and Charlie, Erin, and George owe Bob $100. This is the same physical $100 bill. Did Bob "create" money?

If Alice is RBNZ and Bob is BNZ, does the answer change?

The critics of banks and reserve lending claim that Bob "created" $200 or $300. I claim that moving a dollar through doesn't "create" money. Counting entries on a ledger doesn't make it "money".

I think the power to create money should remain with the banks, but that every household in the nation should be allowed to be a bank.

That would "cure" most of the problems we have. And we could use inter-bank lending (as used today) for things like credit card debt, and mortgages. After a while, people would stop using the traditional banks, and the problem would cure itself.

Banks leach out $60Billion (or more) a year, about $20 billion a year of that sent out of the country to Australia as profits to overseas owners. That drain on the economy, once lifted, would spur massive growth.

Nice one Amanda, its definately an issue that makes me angry! Personally id like to see the following:

1. Govt to issue interest free currency.
2. Move towards a Gold standard.
3. Goods producing Economy.
4. Tax on money speculation transactions.

Anyone seeking info on this topic i highly recommend You Tube Mike Maloney The Hidden Secrets of Money. Very well researched and easy to understand.

Whats your proposal Amanda?

http://thestandard.org.nz/real-monetary-reform/

@marcwhinery Marc. Oh but they do create money out of thin air. There are many prestigious figures in high places that quote this, and on my website, there is a video of Michael Kumhof, Deputy Division Chief of the International Monetary Fund saying this clearly. He is not the only one.

In addition, with respect to your fractional reserve banking example "the way monetary economics and banking in taught in many, maybe most, universities is very misleading" That's a quote from Professor David Miles of the Monetary Policy Committee at the Bank of England.

The error with the fractional reserve banking example is that it is assumed banks need deposits before they make loans. They do not. They make a loan and look for deposits later.

Your loan shark example is 100% reserve banking, which you are right in this example does not create money. This is the way banking should work, because when the money is lent it is not also available to withdraw.

We cannot allow private banks to continue to create money. Here is a good reason from Rothbard in 'What has the government done to our money' (pg. 45).

"The bank creates money out of fresh air, and does not, like everyone else, have to acquire money by production and selling of services. In short, the bank is already and at all times bankrupt; but its bankruptcy is only revealed when customers get suspicious and precipitate 'bank runs'. No other business experiences a phenomenon like a 'run'. No other business can be plunged into bankruptcy overnight simply because its customers decide to repossess their own property. No other business creates fictitious new money, which will evaporate when truly gauged."

I am proposing the same plan that the Green party in UK propose, the same plan that the international movements are proposing, such as Positive Money NZ and Positive Money UK and the International movement for monetary reform. Please do have a read of the references.

@ericokane Hi Eric. I'm not personally advocating interest free money: I think that is a can of worms but I know Democrats for social credit have this policy.

The gold standard does place a finite limit on how much money can be created. So then we would have to look at an interest free policy.

A goods producing economy sounds like a good thing.

Tax on money speculation sounds ok too.

My proposal is to follow the solutions set out in Positive Money. The banks would only be able to work as true intermediaries. Only the RBNZ would be able to create the nation's money. And an independent, democratic and accountable body such as a monetary policy committee would decide how much money our nation needed within inflationary limits. The government of the day would decide how it is spent. (No more borrowing $60B to spend in to our economy, only then to have to pay it back with interest).

Money is an interesting concept: mainly because it was invented by humans for the use of humans to serve us. If it does not serve us then it can be redesigned. Debt based money is not a law of nature.

Amanda is right in saying that banks create our money supply (at least, 98% of it) from nothing. It is also true that taking money creating powers from the private banks has been aired repeatedly on Loomio and I thought we had reached general agreement on that fact. I dont see that we need to cover that ground again. All that is needed is to agree on what to do about it. The steps in the PositiveMoney proposal have been around for about two years now and explain the necessary steps in detail. They have not been refuted yet and have clearly impressed the UK Greens (also the US Greens, I hear) and have the support of some well-regarded
economists.

@dennisdorney They don't create it 'from nothing', they create it from the existing money supply.

For every dollar of debt that the bank creates, that's a dollar of spending they have to honor.

@amandavickers Do you disagree with the existence of debt/credit at all?

For example, if someone wants to take out a loan to start a business, or buy house.

@dennisdorney "taking money creating powers from the private banks has been aired repeatedly on Loomio and I thought we had reached general agreement on that fact. I dont see that we need to cover that ground again."

Well, we've voted at least six times to legalise marijuana, so I'm sure we can all benefit from voting four or five times to reform the banking system.

@amandavickers

Your strong belief that you think you know how banks work doesn't make it true.

Banks only lend money they have, and never "create" new money.

I understand that it's confusing, and some people who want to change the system lie about it convincingly (some I think want to keep it the same, so they send the anti-bank nutters off on irrelevant goose chases). But you've bought into a lie.

Back to my previous example, I left out the thing that seems to confuse those who desire to misunderstand banking.

Bob can also not give out the $100, but instead give out an IOU. But is that money? Does it matter if the marketplace calls it an "invoice" or under contract terms "net-30"?

Yes, if a bank prints money, so does every business that prints an invoice or sends a bill.

As I said, you don't understand banking. And from your responses, willfully so. The propaganda you are pushing is all lies. I could prove it false, but your confirmation bias would prevent logic from working.

The sad thing is, I want to see the banks gone too. But for the actual reasons, not the made up lies. So I'll just have to work to keep them in place to prevent the ignorant and liars from building their even-worse replacements.

I've read your slides. I understand your point. And I still disagree. Arguing from authority (more quotes) won't convince me. Try logic. A bank starts today. It has $0 in deposits and funding. Someone walks in and asks for a $500,000 loan. What printer does that bank run to to print off that $500,000 to give them? They don't because they can't? Oh yeah. That's because banks don't print money.

If you take the stance:

Banks do not create money

Then the answer is clear (at least to me).

Banks lend money they get in deposits. Where do they get that money? From depositors. So why can't people borrowing money get it directly from depositors?

Cutting out the banks would save $80,000,000,000 a year. And the banks, being almost completely foreign owned, remove $20,000,000,000 from the economy every year, sending it mostly to Australia.

But if we fixed the bank, the largest company in the country would have fiscal problems. The government deliberately depresses the NZD to make Fonterra's exports cheaper. But if our economy was strengthened by "abolishing" banking, then Fonterra would face high international prices, and get weaker. So nobody with power wants to fix banking, because it would crash the NZ economy, or so people think.

So, rather than focusing on lies that banks print money from nothing), I'd rather the anti-bank people focus on the ticket-clipping the banks do, draining our economy and leaving us in over-priced debt.

With the amount of money leached out of the economy by banks being left in the country, we could do something like lay Personal Rapid Transit alongside every paved road in the country http://www.skytran.us/intro/ and that's just the first year (for funding, not construction time).

What would you like to see the second year? Complete rebuilds of every hospital and school in the country?