The Radical Reform That Would End Boom and Bust in Banking

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In a Cobden
Centre/ICM survey 2,000 people
, a staggering 74 per cent of
the respondents think that they own the money in their bank account.
Only 8 per cent know the correct answer – that the banks owns it.

We all know
what notes and coins are. They allow us to exchange the fruits of
our work for the goods of others. When we deposit cash in Bank A
– say £100 – we lend this money to the bank. But
as soon as you make a deposit it becomes the bank’s. They then lend
the £100 to say an entrepreneur, who banks it in bank B. Like
magic, we now have you, who have a claim to "your" £100,
and the entrepreneur, who also has an equally valid claim to "his"

This happens
33 times for every £100 deposited in the British economy on
average, meaning that for every £100 deposited, it is lent
out to 33 people. This cash cannot exist in two places at the same
time. So what bank A does, is write you an IOU. Yes, your bank-statement
is a mere IOU, the bank saying " bank A owes you £100
on demand." This is called a demand-deposit.

We now see
that demand-deposits are created out of thin air. Indeed, these
are just ledger-entries from one bank customer to another. The creation
of this credit causes a credit-induced boom that then becomes a

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16, 2010

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