Financial Lesson 1: Private Banks Make Money Out of Thin Air

I know this article is out of the blue but it is something I just learned that I think is very important to us because our lives revolve around money these days.

Many people think that when you go to a bank to ask for a loan, the money they give you is taken from what other people save. That’s not how things work (even though that’s what the text books say).

Banks make money out of thin air, and are in fact one of the ways in which money is “created” in the modern financial system.

Let me explain:

When you open go to the bank to take a loan of 100 shillings, the bank generates that money out of thin air.

It does not use other people’s savings to fund your loan (a common belief that is very wrong)

It also doesn’t get that money from the Central Bank.

In fact, the Central Bank only asks the bank to deposit an amount equivalent to 1-3% of the loan you took. In doing that, the bank is given the license to generate money out of nothing.

And by the way, the interest you pay for that loan goes to the banks profits. They earn profits out of nothing.

That’s why people who know this are mad at the financial system.

Unfortunately, not very many people know this even happens… and if you were in the bank’s position, you would want to keep it that way, wouldn’t you?

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