How Banks Stuff their Pocket Out Of Nothing

In fact, banks are money factories.
You might think that banks are in business to provide services such as banking accounts and loans to their customers.
However, the reason that the banks provide such services is that banks need money to use as raw material to create more money.
In other words, it comes from the money you and I deposit into the bank.
It's not simply that banks "earn" profits when they provide bank services and loans.


Here is an example of how banks create money.
The bank now can use your money to create loans.
A 3% reserve rate means that the bank must keep 3% of the $100,000 on reserve and can loan the remaining 97%.
For our example, let's assume that the reserve rate is 10%.


So, the bank makes Loan #1 of $90,000 and keeps $10,000 on reserve.
According to the bank's balance sheet, the $90,000 loan to the borrower is also a $90,000 asset for the bank.


But the process does not stop here.
Since the same Federal Reserve rules apply, the bank must keep 10% of this asset on reserve.
This means that Loan #2 is $81,000.
The $81,000 loan to the borrower becomes an $81,000 asset for the bank.


And since the bank now has an additional $81,000 asset, it can make another loan.
This means it can loan only 90% of the $81,000 asset.


Federal Reserve rules allow the bank to make five to six loans based on the original $100,000 deposit.
We'll stop at three loans, review the process, and add up how much money the bank has created.
The bank creates three loans based on the original $100,000 deposit.
Loan/Asset #3 = $72,900.
This is $243,900 in new money.
Meanwhile, the bank has created $243,900 of new money.
($243,900 - $5,000 = $238,900.
This is how banks create money.
A bank doesn't really make a series of separate loans based on a single deposit.
But this oversimplified example demonstrates how banks create money out of thin air.
The loans become assets and the assets turn into money.
The real point of this example is to take some of the mystery out of money.
Money is not equivalent to currency.


So, if you want more money, think the way bankers think.
If you really think the way bankers think, you will use someone else's money to create more money.