How Money Is Created

[dimpy.handa]

Our system has been transformed into a wealth siphoning system. It pulls from the bottom to feed the top. This is not some accidental or evolutionary trend, it is by design. The most breathtakingly brilliant part of it though is how the "owners" of our nation have set up a series of institutions that reinforce these notions and keep us all in line. We are trained from birth to think that this is the only and best way to do things. Clearly there has to be a better way; one that IS concerned with human wellbeing rather than blind self-maximizing greed.

 

[shivibhanot]

Money is created in two ways: First, money creation comes from borrowing it and spending it. (Money is literally borrowed and spent into existence.) Second, it can simply be printed up "out of thin air" by a central bank. The U.S. economy and other modern economies have central banks and fiat currencies. Central banks have two major powers. They can 1) "peg" the nominal level of short-term interest rates, and 2) purchase assets such as government debt, with newly printed money. When the central bank pegs short-term interest rates at a low level, it greatly encourages corporate and individual borrowing and spending.

For the past decade, most money has been created through private sector borrowing and spending. However, the day is fast approaching when the private sector's new borrowing will not create enough new money to keep servicing the already massive level of old debt. Central banks will need to step up their efforts to "print money out of thin air". Central bank printing of new money is accomplished by purchasing government debt or other assets.