Analysis by (mrc) -- This idea of banks creating
money for loans -- but not creating money to pay the interest is a
widespread myth that is destroyed at
If a careless reader reads the first part of the link on the preceding link (before the myth is exposed), he or she may very well believe that such a lending practice may cause serious problems. Evidently lots of people have done just that -- as has, evidently, Ellen Brown in the quotation above.
We just Googled "create the principal but not the interest" and got 93 hits -- Ellen's link was #1.
Lots of people would obviously be led astray if they only read Ellen's article. (mrc)
Analysis continued -- Expecting the government to (a) create money and put it into our economic system as a loan and (b) also create the interest to pay off that loan is a little goofy. That is analogous to a graduating college student saying to his father -- "Thanks for giving me this new car, Dad, but you forgot to give me enough money to pay for the gas I will need." It is not up the father to give the student money for the gas and it is not up to the government to give someone a loan and give that someone the money to pay the interest on the loan. It is up to the debtor to work and make the money to pay the interest.2) Fractional Reserve Banking Unmasked / Beware -- almost everything you read about Money and Banking is untrue and either a hoax, a myth or an outright lie.
3) Here is an article by the only writer -- out of 100 -- that really understands how banks create money -- it is part of the Google poll. / Debunking The Myth that the Fed is Currently Doing Something Unusual and Dangerous << http://www.primeronmoney.com/neilbuchananoncreatingmoney.html >>
4) "Bank Runs are still a problem " No they are not --- converting to Paper Money basically stopped the problems that existed previously when hardly anyone trusted paper money. Because our paper money is backed by (a) Legal Tender laws, (b) all the wealth available to be purchased in almost any market in the world, and (c) our courts and police who will enforce our laws.
5) The biggest myth of all? "The United States (the richest country that has ever existed) has to borrow money because we regularly spend more than we take in."
That is totally absurd -- we have the Sovereign Right to create whatever money we think we need to run our country efficiently. Creating money does not cause inflation if the total money in existence does not exceed the total wealth of the country -- and that can never happen if the newly created money is put into the economy so as to create more wealth than the dollar value of that newly created money. We simply have to invest wisely in wealth-producing assets.
6) This one is almost unbelievably silly -- "It is a good idea for banks to sell off their mortgages
to Fannie Mae and Freddie Mac -- so the banks can use that money to
make new loans"
(That was why the government set up those two "F
groups"). This was, in our opinion, the single most important blunder
made by Congress in my lifetime. That action put those mortgages into
the public financial marketplace where they were they were blanched,
branched and tranched into strange financial instruments which were
sold worldwide to people who knew not what they were. Thus the
financial meltdown started with the monetary fuel from these mortgages
and the spark of greed from financial types who spun straw from gold.
See #4 at
< http://www.primeronmoney.com/six-serious-defects-in-our-money-and-banking-system.html >
There is no need to funnel money to banks -- they have the right to make whatever money they need to make prudent and sensible loans -- it is all part of our Sovereign Right to create whatever money we need.
See http://www.primeronmoney.com/moneyfactsannotated.html -- items 1 to 4 -- reproduced below. This is by Wright Patman in his "Money Facts", a supplement to his "A Primer On Money" (a .pdf).
Who has the right to create money in the United States? Under the
Constitution, it is the right and duty of Congress to create money. It
is left entirely to Congress. ...
2. To whom has the Congress delegated this money creating right? (in the 1913 "Federal Reserve Act - mrc) To the banking system, that is, to the Federal Reserve System and to the commercial banks of the country. ...
3. Why is the money-creating power important? Because, by creating money, banks provide the exchange media which the economy needs to prosper and grow. Since the growth and proper functioning of the U.S. economy require increasing amounts of money over the years, those who control the amount of money exercise great power over business activity, the incomes people earn and economic strength.
4. Why was the banking system given the right to create money? The reasons are mainly historical. Still the banks do perform a service in creating money. For once the money and credit is created someone must decide whom to give the money and for what purposes. This the banks do. And bank earnings are the return for wise and proper placing of the money supply.