money-supply will have returned to its former level. The argument that bank lending increases the money-supply and loan repayment reduces it is spurious. 12: Neither the Law nor Central Banks authorize commercial banks to create money. In most countries, the law authorizes the Treasury alone to create money. Banks are not included in this authorization. Central Banks are licensed to issue and withdraw banking licenses not to create money. They have the authority to – examine the suitability of bankers to be licensed as deposit takers not as lenders. – Central Banks try to limit the amount of commercial lending a particular bank can make. They used to try to limit bank lending by requiring a portion of each bank’s loan portfolio to be held as included the cash ‘reserve assets’. ‘Reserve assets’ they held, deposits they had with their Central bank and loans they had issued to the government through the purchase of government bonds. These regulations limited banks to lending no more than a stipulated multiple of their Regulations are bureaucratically issued bank rules and ‘reserve assets’. regulations not law. Under these regulations, any bank could increase its lending – merely by purchasing more government bonds, depositing more with its Central Bank or otherwise creating new Once a bank had increased its ‘reserve assets’. the limits of its lending would have increased and it could issue ‘reserve assets’, more loans. Once a bank has loaned all the money the law of precedent has gifted to it from each current account, the multiple of allowed them to depositor’s ‘reserve asset’ create new money out of thin air up to their limit and put it into a borrower’s current account. This ability to create money was not sanctioned in law. It was a bureaucratic edict. The Bank for International Settlements has now taken over this role. It changed the basis for limiting bank lending by issuing These ‘Tier’ requirements. ‘Tier’ requirements try to limit the amount a bank can lend to a multiple of its shareholder equity. no longer apply. Now, a net equity ‘Reserve assets’ bank’s must be no less than a specific percentage of its total loans. At 7%, banks can lend over 14 times their shareholder equity. When they have loaned all of the money on deposit, these BIS regulations that permit them to create new money out of thin it’s
money-supply will have returned to its former level. The argument that bank lending increases the money-supply and loan repayment reduces it is spurious. 12: Neither the Law nor Central Banks authorize commercial banks to create money. In most countries, the law authorizes the Treasury alone to create money. Banks are not included in this authorization. Central Banks are licensed to issue and withdraw banking licenses – not to create money. They have the authority to examine the suitability of bankers to be licensed as deposit takers – not as lenders. Central Banks try to limit the amount of commercial lending a particular bank can make. They used to try to limit bank lending by requiring a portion of each bank’s loan portfolio to be held as ‘reserve assets’. ‘Reserve assets’ included the cash they held, deposits they had with their Central bank and loans they had issued to the government through the purchase of government bonds. These regulations limited banks to lending no more than a stipulated multiple of their ‘reserve assets’. Regulations are bureaucratically issued bank rules and regulations – not law. Under these regulations, any bank could increase its lending merely by purchasing more government bonds, depositing more with its Central Bank or otherwise creating new ‘reserve assets’. Once a bank had increased its ‘reserve assets’, the limits of its lending would have increased and it could issue more loans. Once a bank has loaned all the money the law of precedent has gifted to it from each depositor’s current account, the multiple of ‘reserve asset’ allowed them to create new money out of thin air up to their limit and put it into a borrower’s current account. This ability to create money was not sanctioned in law. It was a bureaucratic edict. The Bank for International Settlements has now taken over this role. It changed the basis for limiting bank lending by issuing ‘Tier’ requirements. These ‘Tier’ requirements try to limit the amount a bank can lend to a multiple of its shareholder equity. ‘Reserve assets’ no longer apply. Now, a bank’s net equity must be no less than a specific percentage of its total loans. At 7%, banks can lend over 14 times their shareholder equity. When they have loaned all of the money on deposit, it’s these BIS regulations that permit them to create new money out of thin
FIXING%20OUR%20BANKING%20AND%20FINANCIAL.SYTEM.OCTOBER-8-%202016.docx